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Why are home sales falling to 2010 levels? · The Financial Exchange Show

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Speaker 2: Chuck, Mark and Tucker with you here on a wed
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Desnel's day, and as we take a look at where
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markets are again kind of this negative drift that ends
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up turning into nothing by the end of the day.
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Of the last couple of days here where you take
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a look at the S and P five hundred and
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it's it's kind of just treading water within about one
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percent of its all time highs. We've had two negative
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days in a row to start the week, Monday and Tuesday,
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but both of them at one point were down you know,
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half a percent, almost one percent on Monday and basically
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rallied back to you know, pretty close to flat by
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the end of the day. We'll see if we end
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up with a similar story here today. We do have
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some economic data that came out this morning, most of
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it related to the housing market. The first piece, the
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Mortgage Bankers Association publishes a few different indices of mortgage activity. Overall,
2:10
the Mortgage Application Index down six point seven percent week
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over week. This is an index, by the way, that
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is really volatile based on rates so when I say
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like it's down six point seven percent in a week,
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that doesn't mean that the world is ending. You do
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see big shifts in mortgage volume, most of that on
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the refinance side, because refinancing activity in particular is really
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rate sensitive. The NBA Mortgage refinance index down almost nine
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percent for the week, whereas the purchase index down around
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four and a half percent. So overall, what we are
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seeing higher interest rates trickling into the mortgage market and
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mark as we're seeing that it's being reflected in fewer
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people either trying to refinance or purchase new homes using mortgages.
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Speaker 3: Yeah, I guess that's the way it's supposed to work,
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all ll sql.
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Speaker 2: It is where this ends up a couple months later
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is in something called existing home sales, which measures, as
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one would expect, the sales of homes that have already
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been in existence, used homes, if you will. And for
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the month of September, we saw that existing home sales
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drop by about one percent from an annualized pace of
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three point eight eight million down to three point eight
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four million, So continuing to see the pace of home
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sales slide, and this is something that dovetails with again
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the mortgage data that we have here, but ultimately is
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something that is not great for overall economic activity simply
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because as you see housing sales slide, there's a ton
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of economic activity then that doesn't occur as a result
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of those missed sales. Think about all the money that
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is unlocked from a house when you sell it. As
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an example, let's say that you're selling a home for
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what's the meaning home price in the US now, it's
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like three hundred and eighty seven thousand chains were in
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that Ballparker is at four hundred I don't know, let's
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call it four hundred thousand. Just to make the math easy.
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Sell home for four hundred thousand. Twenty thousand inequity out
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the door right away, paying the agents, So you get
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twenty thousand that's coming out into the local community. You
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might pay movers that might be a couple thousand dollars.
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You might pay for new furniture that might be a
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couple thousand dollars. You might pay for some painting or renovations.
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Maybe you decide, hey, we're doing a whole you know, kitchen,
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it's you know, forty fifty thousand dollars. I don't even
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know what a kitchen goes for At this point, I
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think you can probably buy fridge is that expensive if
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you really wanted to. But the point is moving is
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something that generates a ton of economic activity. The only
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single transaction that typically generates more when you are talking
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about the US economy, aside from like buying a private
4:44
plane or something, is when you are building that new
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home to begin with, because then there's all of the
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labor cost and everything that goes out into the community again,
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wages and things like that. But housing is a huge
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engine of economic activity, and so when home sales slow,
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it's typically a leading indicator of where the economy is going.
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Speaker 3: Yeah, the knock down effects are the important ones because
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residential investment traditional housing is not a huge part of GDP.
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It's well under five percent in terms of contribution.
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Speaker 4: Just the marginal that we report every quarter.
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Speaker 3: It is all the secondary and higher order. It's not
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quite the right way to put it, but you know
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what I mean. Effects. I think you're absolutely right. The
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economy is very levered to housing. Said differently, it doesn't
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have to be this way, we just are.
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Speaker 2: It's not an accident though, I mean, you'll get how
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the tax code is structured with the incentives for construction
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and mortgages and things like that. Like it's intentional that
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we've built. Yeah, the ownership.
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Speaker 3: The ownership part of it was and give people an
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interest in property in their communities that foster stability. The
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downside is it's very Its construction is boombust. All construction
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is so you live by it and you die by it.
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I don't know what you do about that or if
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you have to do anything about that.
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Speaker 2: Now, the cause of rates moving up is not that
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the Federal Reserve said, hey, we're gonna hike interest rates. Remember,
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the Fed does not directly control long term interest rates.
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They control short term ones. And the reason why we're
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seeing mortgage rates moving up is because long term treasury
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yields are rising. Over the last six weeks now actually
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probably yeah, six weeks, we've seen the tenyure treasury go
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from three point six percent up to four point twenty
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five this morning. So that's again almost a zero point
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seven percent jump that we've seen in a span of
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about six weeks, and mortgage rates tend to reflect that
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as well. Mark, we went through this whole thing last
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year where in we had treasury rates moving up in July, August,
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and September as well, and the talk at the time was, well,
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the market's finally pricing in, you know that, the fact
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that the US deficit is gonna catch up to us.
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And sure enough, despite adding more debt month over month,
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year over year, day over day, treasury rates did come
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back down. So it clearly wasn't just hey, there's too
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much debt out there, because if that were the case,
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then you would have seen rates continue to rise and
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not move the other direction. So we've we've got a
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piece from Bloomberg here today and it's titled Treasuries Punge
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like it's nineteen ninety five, as traders see Soft Landing
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basically saying, hey, there's going to be more growth, and
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so that's why treasuries are, you know, selling off today.
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It's because of growth. Well, ultimately, it's like it's kind
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of a choosier adventure novel when whenever you're looking at
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any market, like there's no one thing that is ultimately
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driving everything. There are a bunch of competing stories out there,
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and you know, people publish different ones and maybe they
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take hold, maybe they don't. The Soft Landing one is
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one of them. The other possibility is, hey, maybe this
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time people are actually pricing in, you know, the fact
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that interest on the debt continues to grow and it
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has the potential to crowd out other spending and things
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like that. We don't know. But what we can do
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is just try to understand, Hey, where is this going
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to go and where are some reasonable places where things
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may turn. I think that's a better approach, in my
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mind than trying to come up with the one narrative
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to rule them all.
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Speaker 3: Well, I think the key point is the one you
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made at the beginning. The Fed doesn't actually control any
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interest rate. It exerts heavy influence even on the short
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end of the curve. It just targets Fed funds. It
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can't control it. Sure banks control it. They're the entities
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that lend to one another overnight, which is what Fed
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funds is. FED controls the money supply that I can
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say categorically, only the Treasury can print money at the
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direction of the Fed. The Fed uses the money supply
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to exert heavy influence over the short end of the
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so called treasury. You'll curve, like you said, Chuck, long
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end moves due to structural factors worries about deficits, optimism
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about economic growth, which increases demand for loanable funds. And
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we can break the recent increase in the ten year
9:03
treasury up into out rather into the amount that's attributable
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to the rise and expected inflation and the amount that's real,
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if you like, or after inflation, and it's roughly two
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thirds real, which could be due to structural concerns or
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optimism about growth, and one third due to expected inflation.
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But even that's just an approximation. At the end of
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the day, you really don't.
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Speaker 2: Know when we look at the move that we've seen
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in treasuries, and I want to touch on this headline
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again says treasuries plunge like it's nineteen ninety five, which
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may at first glance make people think, oh, is this
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the biggest move that we've seen since nineteen ninety five
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in treasuries. The answer is no. What it is is
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that the two year yield has climbed about zero point
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three four percent since the Fed started cutting, and that
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is the largest rise in the two year yield during
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a cutting cycle since nineteen ninety five. So that is
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the distinction that they're trying to make here. So when
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we talk about the magnitude of these moves, a thirty
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four basis point move in the two year treasury over
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you know, six to eight weeks is not anything to
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write home about. It's it's some volatility. I'm not gonna
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say it's nothing, but it's it's nothing meaningful. Rather, they're saying, hey,
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normally in cutting cycles, the two year doesn't look like
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it is moving. It doesn't tend to move in this direction.
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It is here, And the interpretation by this author is, Hey,
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the two years moving up because the economy is going
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to be able to soft land and they don't need
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to cut as much as anticipated. That's the interpretation by
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this author.
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Speaker 3: Yeah, they're hoping that it's a repeat of ninety five,
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which is really the only universally agreed upon i'd say,
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instance of the Fed having engineered a soft landing raising
10:52
rates to slow price growth, slow the economy a bit,
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but not to the point that it caused inflation.
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Speaker 2: Let's take a quick break here. When we come back,
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we'll talk about the battle of the investment banks. For
11:03
the prediction that is going to be correct on the
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S and P. Five hundred for the next ten years.
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That's a long way of saying, Hey, Goldman thinks there's
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going to be three percent growth in the stock market
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annually for the next decade. What does JP Morgan think
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it's going to do. We will tell you that when
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we return.
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Speaker 2: So it made an awful lot of news earlier this
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week that Goldman Sachs said, Hey, the S and P
12:25
five hundred is going to generate a total return of
12:28
three percent annually for the next decade. JP Morgan comes
12:33
out and says, hey, we think the S and P
12:37
five hundred is going to generate a an annual total
12:41
return of six point seven percent, not six point six,
12:44
not six point five, not six point eight, but six
12:47
point seven percent over the next ten years. They're remarkably
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precise about this mark.
12:52
Speaker 3: You may wonder why they are, and it's not just
12:55
because they like to drive us crazy. It's because there
12:59
are investors who have a required rate of return we
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all actually do, whether or not. You know what, you've
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got one. Most of us need our money to work
13:06
for us. So those institutional clients, mainly like pensions, sure,
13:09
ask them for that, and they push for the one
13:12
decimal economics and finance there you know, at best a
13:15
one decimal place science. But we get pushed for that.
13:19
I say, we like some in the profession by actuaries
13:22
who require that we give them that. That's why we
13:25
arrive at what some would call silly or false precision.
13:29
Just as a little background there as to why you
13:31
get the decimal point.
13:33
Speaker 2: Other things that we you know, found here not found
13:36
are things that you can read about on this, just
13:38
in terms of looking at it. I want to go
13:40
back to the Goldman piece here. Goldman thinks that there
13:43
is a seventy two percent chance that stocks will underperform
13:47
bonds over the next ten years. And the way that
13:50
you get there is relatively simple. If you are looking
13:54
at a ten year horizon, then you're going to compare
13:56
stocks to the ten year bond. And the ten year
13:58
treasury right now is yielding.
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Speaker 1: What four point two five five right now.
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Speaker 2: So if you go out and you buy a ten
14:05
year treasury right now from the US government, you are
14:08
locking in a four and a quarter percent rate of
14:10
return over the next decade, unless the US government decides
14:14
to default on its debts, which would basically up end
14:16
the entire financial system as a whole and be rather bad.
14:20
So we generally assume that won't happen. Under that assumption,
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then Hey, if you think stocks are only going to
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return three percent, the vast majority of that distribution, Like,
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you don't say, hey, they can only return it's no.
14:34
The distribution centered around three The logical thing is, hey,
14:38
there's going to be some of that right tail that
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can exceed a foreign a quarter percent return. But they're
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saying it's not a great chance that.
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Speaker 4: You do that.
14:44
Speaker 2: That's how the math actually works based on what Goldman's saying.
14:49
Now here's one thing that I do know when it
14:53
comes to these long term projections, they're generally not great
15:00
at forward forecasting. No, like no one is in terms
15:04
of where a specific asset class is going to perform.
15:08
I remember even hearing, you know, back in twenty twelve,
15:11
twenty thirteen, after stocks had recovered kind of back to
15:14
where they were before the financial crisis. The thing that
15:17
you heard is, hey, you know, the next decade is
15:20
going to be really tough for stocks because you know,
15:22
we've had, you know, a term for it was like
15:24
the new normal sluggish growth. Growth is going to be slow.
15:27
Stocks are going to struggle to do as well as
15:28
they have before. In the last decade for stocks has
15:32
been in like the seventy fifth percentile of historical returns.
15:36
So a lot of really smart people can be wrong
15:39
about this stuff. I'm not saying they will be going forward.
15:42
And it's also not to say, hey, they might be
15:44
wrong in the wrong way. Also, like there's a chance
15:47
that returns might be worse than three percent, I.
15:49
Speaker 3: Think it's fair to ask your advisor how they arrive
15:52
at that number. So in this case, you start with
15:55
the dividend yield, which is what like a percent and
15:56
a half? Right Now'm sorry, I don't have any front
15:58
of me one, okay, So you start with that. You
16:00
know you're gonna get the dividend yield, Well, you don't
16:02
know companies companies we cut dividends, but say on average
16:06
that that manifests, So you're gonna get one point seven
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What do you expect on top of that? Will there
16:11
be any growth? Will company earnings grow? And will some
16:14
of that get passed along new shareholders?
16:16
Speaker 2: And historically the S and P five hundred is seen
16:19
a compound annual growth rate on earnings of around six
16:21
and a half percent, that's the historical trend that we've
16:24
seen for the last eighty nine.
16:25
Speaker 3: How much of that gets passed through in the form
16:28
of buybacks and other forms of distributions. This is where
16:32
the exercise, excuse me, starts to get tricky. It's very
16:36
easy to estimate, as you point out bond returns, because
16:39
the yield to maturity that you see quoted is pretty
16:42
much what you're going to get assuming no credit risk.
16:44
And by the way, we're not even talking about inflation here.
16:46
Inflation could wipe out We're just talking both as it
16:49
did in the seventies when bonds, where bond returns with
16:51
negative and stocks are barely positive. Inflation can wipe out
16:54
the returns on both stocks and bonds in terms of
16:56
your purchasing power. But you start with the dividend yield,
16:59
and then you have to start making assumptions, each of which,
17:02
if you've ever had to present this to somebody, your
17:04
voice starts to get a little shakier as you go
17:06
through the stages, because I'm very confident in the dividend yield,
17:09
and then we have to make a little assumption about
17:11
and my voice gets a little higher, and it gets
17:12
a little shakier about earnings and how much of that
17:15
gets passed through. It does become a very subjective exercise.
17:19
Speaker 2: Mark how does valuation factor into that as well. Right now,
17:22
you're sitting in twenty two almost twenty two times forward
17:26
earnings on the S and P five hundred. How does
17:28
one go about modeling where multiples are going to be
17:32
over here?
17:32
Speaker 3: In my experience, when somebody gets to an estimate they
17:35
think is a little bit too high. So suppose I
17:37
add the seven percent rounding up on earnings to the
17:40
two percent rounding up on dividend yields, and I get
17:42
nine percent from stocks. That's my forecast for the next
17:46
ten years. That's my capital market assumption. Is the fancy
17:49
way people and investments refer to that. But I feel
17:52
like that's too high, like stocks have been on such
17:54
a tear. I think it's going to be a little
17:55
over the next ten years. I don't actually think.
17:57
Speaker 2: This, but this is this is this is the process.
17:59
Speaker 3: Someone got another variable I can futs with, and that's
18:03
the multiple, the valuation multiple. Do I want to assume
18:06
it stays the same or do I want to assume
18:09
it compresses? As people in finance like to say. So
18:12
that's the weasel term that I can finagle to make
18:16
my rate of return estimates be higher, lower, or about
18:20
the same. And the difference between Goldman and Morgan here
18:23
is Goldman thinks there's gonna be the more valuation compression
18:26
than Morgan does. It's very convenient if at the end
18:28
of the day you don't like what you got, you
18:30
could just twist a little knob on the scale and
18:32
get to a different number. And it's totally defensible, by
18:35
the way.
18:35
Speaker 2: So to put words in your mouth, Goldman are the
18:39
bigger weasels.
18:40
Speaker 3: I think Morgan, well, I, yeah, in this case, I would.
18:44
I would err with I'm gonna be a weasel here
18:46
and say I would have done what Goldman did because
18:48
that feels.
18:48
Speaker 2: More right to me, because you can say it's a
18:50
judgmental at the end of the day, you could say historically,
18:52
you know, we trade it, you know, eighteen x, and
18:54
so that's you know, there's gonna be is that, hey,
18:57
we think will normalize valuations rather than remaining elevated.
19:01
Speaker 3: Yeah, there's gonna because twenty percent valuation. If you ever
19:04
hear the term valuation compression, that sounds like a physical
19:08
phenomenon that's not Actually.
19:09
Speaker 2: It hurts means, yeah, it's not pleasant to go through.
19:12
Speaker 3: Stand up walk it off.
19:13
Speaker 2: Yeah, you just don't rob it you know, like it's
19:16
just just keep moving. Let's take a quick break here.
19:19
When we come back, We've got Wall Street Watch coming
19:23
up after this, and then we are joined by Todd
19:25
Lutsky from Cushing and Dolan for Ask.
19:42
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19:54
Street Watch. A complete look at what's moving markets so
19:57
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20:02
Speaker 5: Busy day of earnings. Traders are very busy sifting through
20:06
all the third quarter results, and markets are in negative
20:10
territory right now. The Dow is down by over half
20:12
a percent, or two hundred and thirty eight points, S
20:15
and P five hundred down just over thirty of a
20:17
percent or twenty points, and the Nasdaq is down by
20:21
one hundred and two points are just over half a percent.
20:24
Russell two thousand also off by half a percent as well.
20:27
Ten year treas reeled up by four basis points at
20:29
four point two five percent, and crude oil is off
20:33
about half a percent, rating at seventy one dollars and
20:35
forty four cents a barrel, bowing down by one percent
20:40
after the struggling plane maker posted its largest quarterly loss
20:43
since twenty twenty. Free cash flow is also negative one
20:46
point nine five billion dollars owing to losses in its
20:49
commercial airplanes in defense segments. Meanwhile, McDonald's stock plunging by
20:54
five percent after the CDC said an E Coli outbreak
20:58
linked to the fast food giants quarter pound burgers as
21:01
a resultant in the hospitalization of ten people and one death.
21:05
Sticking with the fast food space where Starbucks shares are
21:08
down by about a quarter percent after the coffee chain
21:11
the coffee restaurant chains new CEO Brian Nickel called for
21:15
a big overhaul after disclosing steep quarterly setbacks in the
21:19
biggest markets. The company also suspended its twenty twenty five forecast.
21:23
Coca Cola shares up by half a percent after posting
21:26
better than expected third quarter results, but did not provide
21:30
its full twenty twenty five outlook. The Wall Street Journals
21:33
reporting the Frontier Airlines is exploring a renewed bid for
21:37
Spirit Airlines, sending shares in Spirit up by forty two percent,
21:43
and after today's closing bill we'll see anticipated third quarter
21:46
results from Tesla I'm Tucker Silvan. That's Wall Street Watch.
21:51
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England for more than thirty five years, helping families with
22:09
a state and tax planning, Medicaid planning, and probate law.
22:12
Visit Cushingdolan dot com. Now here's Todd.
22:16
Speaker 2: Lutsky and we're now joined by Todd Lutsky from the
22:20
law firm of Cushing and Dolan. The segment is called
22:23
Ask Todd because you get to ask Todd your questions
22:28
state planning ones only, but if you got anything of
22:30
state planning related. We got the phone lines open at
22:32
eight eight eight to zero five two two six three.
22:36
Last week. Once again we did not get through everyone,
22:39
so please get in line early if you want to
22:42
make sure that your question gets answered. That number again
22:45
is eight eight eight to zero five two two six three.
22:49
We do have the phone lines open for you to
22:51
ask your estate planning questions to Todd. That phone number
22:54
again is eight eight eight to zero five two two
22:58
six three. Mister Lutsky, how are you doing today?
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Speaker 4: I'm doing just good, just good. How are you doing?
23:05
Speaker 2: I'm good. We got a little bit of bad news yesterday,
23:07
though you did, personally, not me personally good.
23:10
Speaker 4: Old McDonald. Old McDonald on the farm had to sell
23:13
his farm. He did, yeh.
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Speaker 2: He had to cover whatever he ei aios.
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Speaker 4: That's right.
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Speaker 2: The real problem for him, Todd. I want to talk
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to you a little bit about beneficiary designations today, and specifically,
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you know, when we're talking about how beneficiaries are designated
23:32
on IRA's, how does that what are the general recommendations
23:36
for how to coordinate that within the state plan? In general?
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Speaker 4: So, I think iras are your most complicated you know,
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asset in your estate plan, so you know houses, rental properties,
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your investment portfolio. All of those assets are pretty easy
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to deal with. When I say easy to deal with,
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I mean if I have a trust, whether it's revocable
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or irrevocable, I'm likely going to suggest some or all
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of those assets into the trusts. If it's revocable, we're
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retitling all of those assets of the trust. I want
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to do that if it's irrevocable, we'll retitle all that
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you feel comfortable putting into the trust. Very easy across
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the board. Enter IRA. IRA is a problem because I
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can't just retitle it now, and so if I try
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to retitle it to a trust, I'm going to have
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a big income tax hit because it has to come
24:41
out of the IRA and be taxed.
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Speaker 2: Let me stop you on that. Is there any situation
24:46
in which you would ever say, hey, it does make
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sense to do that, pull that money out of the
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IRA and put it into a trust. Is there a
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scenario where it might not be the norm, but you
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still say, yeah, would consider doing that.
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Speaker 4: I think it would depend entirely on how much the
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IRA is worth. I mean, if you got like a
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million dollar IRA and you want to put it into
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an irrevocable trust, first of all, you would never do
25:11
it with a revocable trust. You don't need to the
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only time this becomes an issue is when you want
25:16
to do nursing home planning. And that's really again kind
25:19
of what the guide's dealing with too, is how can
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we add nursing home planning protection to an IRA that
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needs also estate tax planning and income tax issues. So
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with a revocable trust, you'd never do it. But with
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an irrevocable trust, could you do it? If they come
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in and they say, you know, I really want to
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protect this IRA from the nursing home. I just have
25:41
to do it, well, I would say, you know, how
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big is it? If it's not going to cause a
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huge income tax hit, I might what about a wroth.
25:52
Now that's an idea. If I've had a wroth kicking
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around for let's say ten years, and I've earned ten
25:58
years worth of income tax free growth, and there's five
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hundred thousand dollars sitting in there, and I say, you know,
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I really want to protect this from the nursing home. Well,
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there's an interesting thought. Now I can take it out
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tax free. Yes, I will lose further income tax free
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growth by putting it in the year of vocable trust,
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But you know what, I'm cutting my losses. I'm saying,
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you know what, if I don't do it, it might
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not be there because all those losses will be taken,
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or all that money will be taken if I get sick.
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If I put it there, at least I'm cutting my
26:29
losses letting it grow inside the trust and protect it
26:31
from my family. Hey, that's not a bad idea. So
26:35
you just got to look at the tax numbers. I
26:36
think Chuck is the way to go on that.
26:38
Speaker 2: Talking with Todd Lotski from the law firm of Cushing
26:40
and Dolan. If you've got a question for Todd, still
26:43
a little bit of room on the phone lines at
26:45
eight eight eight to zero five two two sixty three.
26:48
We're going to take a quick break now, but when
26:50
we come back, it's right to your questions with Todd.
26:54
That number again is eight eight eight two zero five
26:59
two three. Quick break in your questions.
27:02
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:06
only here on the Financial Exchange Radio Network. You're listening
27:12
to Ask Todd with Todd Lutsky on the Financial Exchange
27:15
Radio Network.
27:21
Speaker 2: All right, let's get right to your questions with Todd
27:26
Lutsky here. First up, we've got Bob in situate. Bob,
27:29
what's your question for Todd Lutsky?
27:33
Speaker 6: Good morning, gentlemen. My parents moved into an independent living
27:39
facility uh SUB and paid a nine paid a deposit
27:43
which is ninety percent refundable upon death or move out. Subsequently,
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my father or my mother qualified for Masshouse in the
27:54
in the nursing home there. My father passed away in January,
27:59
we notify mass Health, but that money moved over to
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the nursing home, but it was still an escrow. My
28:06
mother passed away in June, and that money was never
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in her name, and the beneficiary.
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Speaker 7: Or on the refund form was their trust. There was
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no lean by mass Health, nor was that money in
28:21
my mother's name, and it won't have to go through probate.
28:25
Do we have any risk.
28:26
Speaker 6: Of the state we're trying to recover that money.
28:30
Speaker 4: I'm gonna say based on that fact pattern, No, there's
28:35
there's Massachusetts. Just so we understand how it works with
28:39
a medicaid situation. Apparently mom got on medicaid. Mom was
28:45
on medicaid before she died, right, correct, Okay, so somehow
28:50
Dad ended up passing away whatever, and then Mom gets
28:53
on medicaid. She gets on Medicaid because the money sitting
28:56
in that account somehow wasn't wasn't hers. I don't know
29:00
how that. I don't know how Mom got on Medicaid
29:03
with the money sitting in an account that was really
29:05
available to her. In other words, all you guys had
29:08
to do was simply ask for it, right, and that
29:11
money what it came out. So that's the part that's
29:16
making me scratch my head because when you apply for
29:18
mass health, if you're in a nursing home, you know,
29:20
they want to know all your accounts. Now, I get it.
29:23
This was not an account in her name, but yet
29:27
she clearly was someone who could get the money. So
29:30
somehow we get on Medicaid. Now the fact that we're
29:33
on Medicaid and this asset is going to avoid probate.
29:38
Mass Health can only recover against probate a state. Now,
29:42
when you file her will and you file her you
29:46
know if you have to go to probate it all
29:48
there is a document you got to file showing they're
29:52
going to ask you was she on mass Health? You
29:55
have to check a box and the answer is you
29:57
got to send notice to the to the state and
30:01
as part of the probate, they then will come looking
30:05
to say are there any probate assets. If there are
30:09
no probate assets, then they cannot recover. So that's the
30:12
rule and mass they can only recover from the estate
30:15
probated state, not the grossest state having the beneficiary listed
30:20
as the trust. It should go right to that trust,
30:23
and I think it will avoid probate. But that's the process.
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Is there ever a chance, you know, you never can
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say never, but I'm feeling pretty good about it, so folks,
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I hope that helps a little. But you know, when
30:36
we're talking about, you know, protecting assets from the cost
30:39
of nursing home care, an IRA is generally a big
30:43
asset and generally a complicated asset. So learn how you
30:48
can now do both estate planning, state tax planning protect
30:53
it from a nursing home which was something we couldn't
30:55
do before without causing an adverse income tax on the
30:59
required minim distribution, so a lot of heavy lifting. Can't
31:03
learn it on the radio. Call and get the guide.
31:05
Understand how to fit your IRA into your estate plan
31:09
the right way eight sixty six eight four eight five
31:14
six nine nine or Legal Exchange Show dot com again
31:17
eight sixty six eight four eight five six nine nine
31:22
or Legal Exchange Show dot Com.
31:24
Speaker 2: Todd, I've got another caller for you here. Let's go
31:27
to Joey in Wooster. Joey, what is your question for Todd?
31:32
Speaker 8: Hi, Good morning, Todd. I'm attempting to put a rental
31:35
property into a revocable trust. But the lender says that
31:40
I need to refinance the property in order to do this,
31:45
and uh, yeah, I don't know if that's accurate, And
31:49
if so, what recourse do I have?
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Speaker 4: Well, I can tell you that it's if it's a
31:53
revocable trust, right, not irrevocable. Correct?
31:59
Speaker 8: Yes, correct?
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Speaker 4: So I think you need to go to someone higher
32:03
up in that bank and say, look, I don't have
32:06
to refinance anything because it's a revocable trust and transferring
32:13
my property encumbered property to a revocable trust does not
32:21
trigger a due on sale clause. Remember, mortgages have du
32:26
on sale clauses and or a duan transfer clause, So
32:31
transferring the property to a revocable trust does not trigger
32:37
the due on sale clause. So they can't call the note.
32:41
So I'm not even sure why we're telling the bank
32:43
just do it right, because I know it can't call
32:46
the note. In fact, there's a banking law called the
32:49
garn Saint Germain Act that actually explains this, that they
32:54
cannot call a note when it goes into a revocable
32:57
trust because you're still really considered the owner.
33:00
Speaker 1: Now.
33:01
Speaker 4: MEDICAIDIA revocable trusts. Yeah, we got to be a little
33:03
more careful, right, And that's why we usually reserve a
33:06
life estate when we do that to prevent a calling
33:09
of the note. But here, I'm not sure why you're
33:12
even having this discussion with them. I feel like you
33:14
can just go transfer it rental property or not. Now,
33:18
if it was going into an LLC, that's different. If
33:21
you're going to transfer this property into a limited liability
33:24
company because it's a rental property, then I'm gonna tell you, yeah,
33:28
you're gonna have to get bank permission before you transfer it.
33:32
Otherwise they could call the note if they find out.
33:36
So that's my comment. Hope that helps a little and
33:40
we can take it from there.
33:42
Speaker 2: Todd earlier, we were talking a little bit about irays
33:46
and beneficiaries and trying to figure out what to do
33:49
with them in order to coordinate with in a state plan.
33:53
What other options are there out there for someone who
33:56
might have a sizable IRA might be worried about out
34:01
long term care costs and things like that, Like, how
34:03
does one approach that if you can't simply say, hey,
34:06
I'm going to pull this out, pay all this tax,
34:08
and you know, move into the irrevocable trust.
34:10
Speaker 4: What does one do, right? I think the best approach
34:15
you're going to have there is you know this, what
34:18
this guide is saying is to you know, if you're
34:21
married and you want to set up a testamentary trust,
34:26
which is a trust built into your will, that's the
34:30
best way to say it. It's a fancy tax term.
34:32
But you set up a testamentary trust, which is a
34:34
trust built into your will, and then you name the
34:37
estate as the beneficiary. Now, remember you're normally hearing this.
34:41
You're saying, my IRA should be my spouse as the primary,
34:46
my kids as the alternate or the contingent beneficiary. Is
34:49
very common, very normal. Not so normal is naming the estate.
34:54
Now if I name the estate as the beneficiary, and
34:57
again it's the estate of the part discipant of the IRA.
35:01
So if I name the estate the beneficiary, now what
35:05
have I done with the testamentary trust? I still haven't
35:09
protected either husband or wife's IRA from the nursing home
35:15
by doing that. Please understand that, well, they're both living.
35:19
We haven't actually protected anything in advance from a nursing home.
35:24
But Todd, you were saying, there's a way to do
35:26
this in advance there is. By setting it up this way,
35:31
you are now giving yourself a fifty percent shot of
35:35
protecting the asset in advance from a nursing home, and
35:40
before there was never a shot. So now, how does
35:42
it work if you've named the estate the beneficiary and
35:47
that participant dies and the surviving spouse is not the beneficiary,
35:54
so the money flows through probate? Yeah, I know, one negative,
35:59
not enough to not do it. Now it's sitting in
36:02
this testamentary trust for the benefit of the surviving spouse.
36:08
Surviving spouse now has access to both income and principle
36:12
of this money. Good. We're taking care of the spouse.
36:15
We want to do that. But now the surviving spouse
36:20
if gets sick, which could happen, could happen within six months,
36:24
it could happen the next day. Does it matter when
36:27
it happens, it's immediately protected from the nursing home. So
36:31
did I do any advanced protection of an IRA from
36:34
a nursing home. Yes, But in order to get there,
36:38
I need one of the spouses to pass away without
36:42
going to a nursing home, which what is everybody's hope anyway,
36:48
So to me, there's no downside really to trying this well,
36:51
I say there's no downside, but you really got to
36:53
read the guide and understand how that works because there's
36:56
a lot of boxes to check when you make this decision.
37:01
Speaker 2: Mister Lutsky, thank you so much for joining us today.
37:03
Speaker 4: Always a pleasure.
37:06
Speaker 1: This has been asked Odd on the Financial Exchange Radio
37:09
network Aske Todd with Todd. Lutsky has been presented by
37:12
Cushing and Dolan, serving Massachusetts and New England for more
37:15
than thirty years, helping families with the state and tax planning,
37:18
Medicaid planning, and probate law. Call eight hundred three nine
37:21
three four thousand and one or visit Cushingdolan dot com.
37:24
The views expressed in this segment are solely those of
37:26
Cushing and Dolan. Armstrong Advisory does not provide any legal
37:29
or tax advice. Please consult with your illegal or tax
37:31
advisor on such matters. Cushing and Armstrong do not endorse
37:33
each other and are not affiliated.