Latest / The Financial Exchange Show / Consumer sentiment decline fuels evidence of gloom

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Consumer sentiment decline fuels evidence of gloom · The Financial Exchange Show

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Speaker 1: This is the Financial Exchange with Chuck Zada and Mark, Fandetti.
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Speaker 2: Kicking off our show today. It's Chuck, Mark and Tucker
1:14
Speaker 2: with you and a little bit of economic data out today.
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Speaker 2: Nothing too notable. Again, a lot of this is pretty
1:23
Speaker 2: backwards looking. We got some durable goods data from February
1:26
Speaker 2: that was really good, actually much stronger than anticipated there,
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Speaker 2: but again from February before tariffs were implemented, and so
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Speaker 2: you kind of wonder was this tariff front running? Is
1:37
Speaker 2: the data stale now? So it's not to poopoo the data,
1:40
Speaker 2: it's more just hey, if you're getting data from before
1:43
Speaker 2: there was a significant policy change, you have to interpret
1:46
Speaker 2: that through the lens of how has policy changed and
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Speaker 2: how might have affected behavior before and after. But chalk
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Speaker 2: it up to another data point where hey, for all
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Speaker 2: of the discussion about hey, is the economy slowing in
1:59
Speaker 2: this and that the hard data that we are getting
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Speaker 2: is not pointing in a consistent direction that is different
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Speaker 2: from where it was previously. I know people will look
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Speaker 2: at the Atlanta Fed GDP now and say, oh, well,
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Speaker 2: that's you know, printing you know, minus one point eight percent.
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Speaker 2: But even the people who publish GDP now that the
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Speaker 2: guy who runs the project at the Atlanta fed was like, no,
2:22
Speaker 2: there's a dramatic rise in imports for one month because
2:26
Speaker 2: of a you know, weird oddity in the gold market,
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Speaker 2: and that's threw the whole thing off. So it's probably
2:32
Speaker 2: not giving you an accurate picture of what's going on.
2:35
Speaker 2: So you can kind of look at, you know, the
2:36
Speaker 2: data that's coming in and say, okay, like it's it's fine.
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Speaker 2: It's not showing any meaningful shift at this point, which
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Speaker 2: brings us to this piece from the Wall Street Journal
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Speaker 2: which talks about the Conference Board's monthly consumer sentiment survey
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Speaker 2: that came out yesterday, and I'll quote right here from
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Speaker 2: the Wall Street Journal. The Conference boards monthly survey showed
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Speaker 2: that forward looking expectations for income, business, and labor market
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Speaker 2: conditions dropped to the lowest level in twelve years. Expectations
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Speaker 2: fell to an index level of sixty five point two,
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Speaker 2: below the threshold of eighty that often signals a recession.
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Speaker 2: The Conference Board said, so here, here's where we are.
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Speaker 2: Quite honestly, it's really simple. The soft economic data that
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Speaker 2: we are getting in surveys is pointing pretty unambiguously towards
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Speaker 2: people being and not just you know, households. You can
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Speaker 2: look at CEO surveys. There's a big CFO survey that
3:33
Speaker 2: was out this week, purchasing manager surveys. You can look
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Speaker 2: at all these and they're all pointing to, hey, we're
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Speaker 2: really nervous about what the next six to nine months
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Speaker 2: look like in a way that individuals haven't really expressed
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Speaker 2: in the last twelve to fifteen years. The question over
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Speaker 2: the next two quarters Q two and Q three is
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Speaker 2: does it mean anything? Does the soft data turn into
3:56
Speaker 2: hard data prints, because if it doesn't, then throw this
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Speaker 2: one up. There is another you know thing where hey,
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Speaker 2: we're we're not seeing correlations the way that we used to,
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Speaker 2: but there are some things in here that you look
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Speaker 2: at and you're like, hey, if this has you know,
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Speaker 2: the correlation that it used to, it could mean some
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Speaker 2: pretty dodgy things for different parts of the economy. But
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Speaker 2: none of the hard data is printing in line with
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Speaker 2: what the soft data is showing today.
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Speaker 3: Yeah, you mentioned GDP now, which is the Atlanta FEDS
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Speaker 3: now cast. If the quarter ended today, what would.
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Speaker 2: GDP now right now? Yeah?
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Speaker 3: Yeah, yeah, yeah, right. Very few people would appreciate that
4:36
Speaker 3: reference that super troopers, right, yeah, okay, yeah, great. There
4:43
Speaker 3: are others the Dallas FED produces a forecast. It's not
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Speaker 3: so much a NowCast. There's a forecast. There's a bit
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Speaker 3: of a distinction. They're worth emphasizing. We don't need to
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Speaker 3: get into exactly what it means. Practically speaking, they try
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Speaker 3: to affect that, they try to achieve the same thing.
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Speaker 3: Their GDP forecast is about two point three percent, and
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Speaker 3: that's about where we've finished at an annualized rate anyway,
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Speaker 3: during the fourth quarter of last year, a little slower
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Speaker 3: than the entirety of last year. So Atlanta Fed says
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Speaker 3: everything is more or less on or slightly above a
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Speaker 3: trend or potential GDP. There's another measure produced by Jim
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Speaker 3: Stock at Harvard and a bunch of other guys that's
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Speaker 3: also telling us GDP is somewhere, it's slightly around. It's
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Speaker 3: what is believed to be potential GDP, which is based
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Speaker 3: on long term economic forces in the structure of the economy. So,
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Speaker 3: as you said, Chuck, it's soft data, and I don't
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Speaker 3: want to downplay it, and you kind of made this
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Speaker 3: point already. I think just because it's so called soft
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Speaker 3: or survey based data, that financial market data is also
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Speaker 3: suggesting that the economy may be on shakier ground to
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Speaker 3: the extent that equity markets, for example, are a leading indicator,
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Speaker 3: and they are, though not a perfectly dependable one. They've
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Speaker 3: been a bit wobbly lately, though they've bounced back a
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Speaker 3: little over the past week or so. So it's a
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Speaker 3: little more than soft data to me, and there are
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Speaker 3: very plausible reasons to expect an economic downturn. Indeed, policy makers,
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Speaker 3: the administration in particular, is telling us there may be
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Speaker 3: some economics.
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Speaker 2: Multiple people who are at the highest level, whether it's
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Speaker 2: the President, the Treasury secretary. Uh, You've had a number
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Speaker 2: of people say yeah, there there could be a recession,
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Speaker 2: and so that that's something that you don't normally get
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Speaker 2: from it in minista. I say that before a recession
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Speaker 2: just because typically recessions are generally bad for that is.
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Speaker 3: Yeah, that's a really odd thing to tell you the truth,
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Speaker 3: to say we're going to induce a recession in the
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Speaker 3: hopes of we're gonna burn your house down, but boy,
6:43
Speaker 3: when we rebuild it, you're gonna love it. There's a
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Speaker 3: lot contingent there that I wouldn't want to, you know,
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Speaker 3: bet On, But maybe that's a slightly different topic. It's
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Speaker 3: just it's a dangerous thing to play with. But it's
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Speaker 3: mostly financial market data and survey data, as you said
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Speaker 3: at this point, and it is hard to.
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Speaker 4: Know what to make of that.
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Speaker 3: Quite robust durable goods, which you're a leading economic indicator,
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Speaker 3: you'll find them in the main leading in disease, public
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Speaker 3: and private. Hard to know whether that's just pulling forward
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Speaker 3: future activity to avoid tariffs or pointing to continued reasonably
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Speaker 3: strong economic growth.
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Speaker 2: Hard to say one indicator. Again, I'm just looking at
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Speaker 2: some of the underlying stuff in this survey. So the
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Speaker 2: percentage of individuals responding who said that they expect there
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Speaker 2: to be fewer jobs six months from now available rose
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Speaker 2: to twenty eight point five percent from around twenty percent.
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Speaker 4: Now.
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Speaker 2: Typically, if you look at kind of the long term
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Speaker 2: trends on this, outside of recessions, this number is normally
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Speaker 2: anywhere between fifteen and twenty percent. That's kind of the norm.
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Speaker 2: But when you get spikes here, tell me if any
7:55
Speaker 2: of these dates ring a bell as far as the
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Speaker 2: last times that we have gotten spikes to this level
8:00
Speaker 2: twenty eleven, fears of double dip recession and things like
8:04
Speaker 2: that slow down in Europe two thousand and eight probably
8:08
Speaker 2: rings a bell, as you know, not really heading into
8:11
Speaker 2: the greatest economy. Two thousand and one, again, not really
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Speaker 2: the greatest economy, you know, in a recession and heading
8:17
Speaker 2: deeper nineteen ninety again, right is unemployment is about to
8:22
Speaker 2: start moving up? Nineteen eighty one, Right is unemployments about
8:26
Speaker 2: to start moving up? Those are the comparable times that
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Speaker 2: you have this type of spike interest in the conference
8:34
Speaker 2: board's respondents saying, yes, we expect there to be fewer
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Speaker 2: jobs six months from now. And so this is like
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Speaker 2: when I talk about, hey, there are some things where
8:43
Speaker 2: if the previous correlations play out the way they have previously,
8:47
Speaker 2: there's some things that get dodgy pretty quickly. Here. This
8:51
Speaker 2: is historically been a pretty good leading indicator of where
8:54
Speaker 2: unemployment is going, simply because the people that are out
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Speaker 2: there looking for jobs right now, they understand how difficult
9:03
Speaker 2: it is to get a job, even if unemployment isn't
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Speaker 2: moving up right now, and even if companies aren't laying
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Speaker 2: people off right now. And this also gets it potentially
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Speaker 2: the rise and the underemployment number that we saw last month,
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Speaker 2: the U six rising from seven and a half up
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Speaker 2: to eight percent, which is a pretty sizable monthly jump
9:21
Speaker 2: that you saw. So it's not to say that this
9:24
Speaker 2: will or won't come to fruition. It's much more. Hey,
9:28
Speaker 2: this is stuff that bears watching. But if the hard
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Speaker 2: the hard data has to print all. I was getting
9:36
Speaker 2: questions a month ago about hey, is the US and
9:38
Speaker 2: recession and the answer was unambiguously no. Today the question, hey,
9:43
Speaker 2: is the US in recession? Once again I think unambiguously no.
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Speaker 2: But the soft data is pointing towards stuff that historically
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Speaker 2: has been kind of dodgy over the subsequent three to
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Speaker 2: six months, and so we need to watch very closely
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Speaker 2: how this may develop over for the second third and
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Speaker 2: even into the fourth quarter, because there's some stuff out
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Speaker 2: there that could be concerning It's it's not today, but
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Speaker 2: you have to watch and see how it ends up developing.
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Speaker 3: Yeah, the context that you've already provided, I think is critical.
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Speaker 3: Researchers use these bits of data to produce forecasts, and
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Speaker 3: the accuracy of those forecasts. The future accuracy is distinguished
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Speaker 3: from past accuracy, and we're constantly updating and fine tuning
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Speaker 3: our models to make them more accurate. But the premise
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Speaker 3: is that past relationships. Hold up, and you've already pointed
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Speaker 3: this out. You said something to the effect of what past.
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Speaker 2: These are always fluid, They're never These are not laws
10:46
Speaker 2: of physics, you know, this is this is not objects
10:50
Speaker 2: fall at nine point eight meters percent by that square
10:52
Speaker 2: and unless interrupted by the ground. This is Hey, Historically
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Speaker 2: there's been a pretty decent correlation here, but sometimes it's stronger,
10:59
Speaker 2: sometimes it's weaker, and we don't know what period we're
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Speaker 2: in until after the fact.
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Speaker 3: Right, And that, I think is the big grain of
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Speaker 3: salt with which to take any piece of economic data
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Speaker 3: that someone either explicitly or implicitly is using for forecasting.
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Speaker 2: Let's take a quick break here. When we come back,
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Speaker 2: let's talk a little bit. I think that's enough sentiment
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Speaker 2: talk right now, just because I'm not feeling overly sentimental,
11:23
Speaker 2: you know, just a little bit today, And yet all
11:27
Speaker 2: of these stories are procession is coming before the end
11:30
Speaker 2: of twenty twenty five. Pessimistic corporate CFOs say, is there
11:34
Speaker 2: anything else to cover on sentiment? I mean, we basically
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Speaker 2: have like three or four different expressions of bad sentiment here.
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Speaker 2: Is there anything else to note on it?
11:42
Speaker 3: Mark it's turned a corner for the worse dramatically in
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Speaker 3: the past two months, and that appears to be directly
11:49
Speaker 3: attributable not just to the prospect of tariffs, but to
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Speaker 3: the way in which tariffs have been implemented to this point.
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Speaker 3: The administration should probably take key because uncertainly you will
12:01
Speaker 3: at some point translate into will become a drag on
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Speaker 3: real economic activity. It's pretty amazing how quickly people have turned,
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Speaker 3: both business people and regular folks like us, have turned
12:14
Speaker 3: on prospects for the economy.
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Speaker 2: Let's take a quick break here. When we come back,
12:18
Speaker 2: let's talk about what we're seeing from low and middle
12:20
Speaker 2: income Americans about how their spending habits may be changing.
12:23
Speaker 2: We'll discuss that next.
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Speaker 2: So what we're continuing to see, and this is something
13:43
Speaker 2: that is showing up in the hard data, is that
13:46
Speaker 2: low and middle income Americans are struggling. High income Americans
13:53
Speaker 2: might voice some gripes about this and that, but by
13:55
Speaker 2: and large, their spending habits are not changing. By and large,
13:59
Speaker 2: they are adjusting their lifestyles in any meaningful way. On
14:03
Speaker 2: the other hand, we are seeing significant issues when it
14:07
Speaker 2: comes to low and middle income Americans, and this is
14:09
Speaker 2: represented in two major ways in my opinion. The first
14:13
Speaker 2: is credit card delinquencies and defaults are moving up pretty meaningfully,
14:19
Speaker 2: and the second is that subprime auto loan delinquencies and
14:22
Speaker 2: defaults are moving up pretty meaningfully. None of these neither
14:25
Speaker 2: of those are big enough to cause economic calamity on
14:28
Speaker 2: their own, simply because if you look at the way
14:31
Speaker 2: that income and wealth are distributed, the lower twenty five
14:34
Speaker 2: percent of America, in a very cynical kind of awful way,
14:38
Speaker 2: just doesn't make enough or have enough to make much
14:41
Speaker 2: of a dent in overall economic growth. It's not driven
14:43
Speaker 2: by them because they make so little, but it is
14:46
Speaker 2: something that still can be really uncomfortable for that group
14:49
Speaker 2: of people, like they're still alive and so yes, while
14:51
Speaker 2: their income doesn't matter for the greater purposes of you know,
14:56
Speaker 2: measuring GDP by and large, it is something where you
14:59
Speaker 2: can be like, hey, this group is in a whole
15:01
Speaker 2: heap of trouble. And again you're talking bottom twenty five
15:04
Speaker 2: percent of Americans. That's eighty million people that are really
15:07
Speaker 2: really struggling, right now, and it's borne out by the data,
15:11
Speaker 2: and there's nothing to suggest any kind of imminent relief
15:15
Speaker 2: for them. Unfortunately, it's really really challenging for them right now.
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Speaker 3: Yeah, and there's no evidence that those trends, that the
15:24
Speaker 3: trends that have led to greater inequality. I'll just broaden
15:28
Speaker 3: the topic a little bit. Yeah, no evidence that those
15:31
Speaker 3: trends are going to change the growth in real national income.
15:36
Speaker 3: And I use that phrase specifically because it's a series
15:38
Speaker 3: that you can get from your favorite federal statistics database.
15:43
Speaker 3: It was quite high in the fifties and sixties, which
15:46
Speaker 3: we all remember as a go or we've all heard
15:49
Speaker 3: those of us who didn't live through. It was a
15:51
Speaker 3: golden age for American workers and a golden age for
15:55
Speaker 3: equitable distribution of the of the fruits of American growth.
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Speaker 3: The rate of growth and national income since the fifties
16:07
Speaker 3: and sixties is slowed by about fifty percent. And when
16:11
Speaker 3: that happens, social mobility slows. The rich will get richer,
16:16
Speaker 3: though less quickly, but it doesn't matter because they're are wealthy,
16:19
Speaker 3: but fewer people in the lower cohorts will be able
16:25
Speaker 3: to climb out. At the same time, labor's share of
16:29
Speaker 3: national income. Is it nearly an all time low? Is
16:34
Speaker 3: is about where it was in the in the in
16:36
Speaker 3: the very late nineteen.
16:38
Speaker 2: Stand right now, do you have the numbers nine?
16:42
Speaker 3: A little over ten percent? This is this is better
16:45
Speaker 3: communicated with a chart, which is where's.
16:48
Speaker 2: Kind of with this.
16:49
Speaker 3: So in the in the golden age of organized labor
16:53
Speaker 3: and when marginal tax rates were higher, when the government
16:55
Speaker 3: was more focused on redistribution of wealth, labor's share of
17:00
Speaker 3: national income versus capital versus profits, that is, was peaked
17:04
Speaker 3: at a little over fourteen percent in nineteen eighty, So
17:08
Speaker 3: it's about two thirds of what it was.
17:11
Speaker 2: So it's down by about a third in terms of
17:13
Speaker 2: where the distribution's going now.
17:15
Speaker 3: It'll bottom out at some point. Capital is not going
17:18
Speaker 3: to take the entirety of national income. But the point
17:21
Speaker 3: is the pie is growing more slowly, and our share
17:24
Speaker 3: of it is workers though were all also owners of
17:27
Speaker 3: capital throughout four to one k's and maybe other things
17:30
Speaker 3: were involved in but labor share is shrink. Labor share
17:33
Speaker 3: of a pie that's growing more slowly has been shrinking,
17:37
Speaker 3: and that in sort of a nutshell, And I'm oversimplifying.
17:39
Speaker 2: Why we don't feel good about the economy.
17:43
Speaker 3: Yeah, I think that probably is a big part of
17:47
Speaker 3: the reason for this chronic discontent and the rise in
17:52
Speaker 3: populism on both the right and the left. And this
17:55
Speaker 3: tells me even if the pendulum swings from the current
17:58
Speaker 3: regime to back to the old regime. And I use
18:01
Speaker 3: regime here not to suggest anybody is trying to accumulate
18:03
Speaker 3: absolute power. Police don't text in. I just mean this
18:06
Speaker 3: regime versus the Biden regime versus the Obama regime. I'm
18:09
Speaker 3: using the term generically. When the pendulum swings, it'll probably
18:12
Speaker 3: be to another populist approach to addressing inequality.
18:17
Speaker 2: In terms of do we have any examples And we
18:23
Speaker 2: probably don't have any good economic data for this, but
18:27
Speaker 2: do we have any examples of like positive ways to
18:30
Speaker 2: resolve this in history?
18:34
Speaker 3: I think a labor economist would say the model in
18:37
Speaker 3: terms of cooperation between business, government and labor was the
18:40
Speaker 3: fifties and sixties when there was just sort of this understanding,
18:43
Speaker 3: and it was it was more, it was firmer and
18:45
Speaker 3: more concrete in Europe than it is here where they
18:48
Speaker 3: actually overtly cooperated. Sure, So I think the short answer, Chuck,
18:53
Speaker 3: is for an advanced developed economy like us. Now we're
18:57
Speaker 3: in We're you could always say this, we're kind of
18:59
Speaker 3: an chartered territory, though some might say the fifties and
19:02
Speaker 3: sixties are a good example of ways that a balance
19:06
Speaker 3: can be found.
19:06
Speaker 2: Sure, let's take a quick break here. When we come back,
19:10
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20:00
Speaker 5: Well after the SMP saw three straight days in the
20:03
Speaker 5: green markets today our mixed territories investors react to better
20:07
Speaker 5: than expected durable goods orders for the month of February
20:10
Speaker 5: unveiled earlier this morning. At the moment, the Dow is
20:14
Speaker 5: up by over a third of a percent, or one
20:16
Speaker 5: hundred and sixty three points, SMP five hundred, down a
20:19
Speaker 5: third of a percent or twenty points, and the Tech
20:23
Speaker 5: heavy Nasdaq selling off over one percent so far today,
20:26
Speaker 5: down two hundred and twelve points. Russ In two thousand
20:29
Speaker 5: is dipping by three points. Ten year Treasury yield is
20:33
Speaker 5: up by three basis points at four point three four percent,
20:36
Speaker 5: and crude oil is up nearly one and a half percent,
20:40
Speaker 5: trading just below seventy dollars. A barrel. Some news out
20:43
Speaker 5: of the retail space this morning, after Dollar Tree agreed
20:46
Speaker 5: to a sale of its family dollar business to a
20:49
Speaker 5: group of private equity investors for about one billion dollars.
20:54
Speaker 5: Dollar Tree shares are up by four percent on the news. Meanwhile,
20:57
Speaker 5: Game Stop shares jumping by over fifteen percent after the
21:01
Speaker 5: video game retailer's board announced it had approved a plan
21:04
Speaker 5: to buy bitcoin and stable coins with a portion of
21:08
Speaker 5: its corporate cache and move similar to that of micro Strategy.
21:11
Speaker 5: Taking a look at Tesla today, where that's stocked down
21:14
Speaker 5: by four percent one day after data showed its sales
21:17
Speaker 5: in Europe plunge for a second straight month in February. Elsewhere,
21:21
Speaker 5: Chewy down by two percent after the online pet store
21:24
Speaker 5: reported quarterly sales and adjusted earnings per share that Beach
21:28
Speaker 5: Street forecast. The company also guided for strong revenue for
21:31
Speaker 5: the current quarter. Bank of America double upgraded mobile gaming
21:35
Speaker 5: company Playtika with a bank set as attractive features and
21:39
Speaker 5: is in an industry that is mature but still growing
21:43
Speaker 5: that stock jumping by twenty three percent. And Wells Fargo
21:46
Speaker 5: initiated coverage of Wingstop stock with an over rate overweight rating,
21:52
Speaker 5: saying the fast casual restaurant is among the best in
21:54
Speaker 5: class consumer growth stories. Wingstop up one and a half percent.
22:00
Speaker 5: Silva and that's Wall Street Watch.
22:02
Speaker 1: This is Ask Todd on the Financial Exchange Radio network.
22:06
Speaker 1: If you have an existing estate plan or in the
22:09
Speaker 1: market for one, Todd Letsky is here to answer your
22:11
Speaker 1: questions and help you plan for a later life. Ask
22:14
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:17
Speaker 1: New England for more than thirty five years, helping families
22:20
Speaker 1: with a state and tax planning, medicaid planning, and probate law.
22:24
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:29
Speaker 2: And we are now joined by the one and only
22:31
Speaker 2: Todd Lutsky from Cushing and Dolan, here to answer your
22:34
Speaker 2: estate planning questions live on the air. We got the
22:38
Speaker 2: phone lines open because again the segment's ask Todd. It's
22:41
Speaker 2: your chance to ask your questions. Got your estate plan
22:45
Speaker 2: to Todd Lotsky studio line is at eight eight eight
22:48
Speaker 2: two zero five two two sixty three. Get calling because
22:51
Speaker 2: we do see those those spots fill up quickly and
22:54
Speaker 2: we only have time to get through two or three
22:56
Speaker 2: questions in any particular show. That number is eight eight
23:00
Speaker 2: eight to zero five two two six three. One more
23:04
Speaker 2: time it is eight eight eight to zero five two
23:09
Speaker 2: two six three. Mister Lutsky, how are you doing today?
23:14
Speaker 4: I am never better?
23:16
Speaker 2: It's good.
23:17
Speaker 4: How's that you top that?
23:19
Speaker 2: I can't. I'm actually in a little bit of a
23:22
Speaker 2: dour mood.
23:23
Speaker 4: Dour Yeah, yeah.
23:24
Speaker 2: Well someone stole my my journal and then they died.
23:27
Speaker 4: They stole your journal.
23:29
Speaker 2: Yeah, Now my thoughts are with their family, that's true.
23:33
Speaker 2: So it's been tough. Todd. I want to talk a
23:35
Speaker 2: little bit about primary residences and can you just kind
23:40
Speaker 2: of rattle off what are some of the different estate
23:44
Speaker 2: planning tools that someone can use to potentially protect a
23:49
Speaker 2: primary residence from creditors? What are the different options that
23:53
Speaker 2: are available?
23:54
Speaker 6: So, and you know that that's important because I talk
23:57
Speaker 6: with clients a lot and they all you know, they
24:00
Speaker 6: come to me sometimes and they say, oh, in fact, Harrah,
24:04
Speaker 6: I had one the other day. They called up and
24:06
Speaker 6: they were wondering what to do, and they said, I've
24:07
Speaker 6: talked to three lawyers and nobody has said anything like
24:10
Speaker 6: you just said. So I'm like, okay, well, I don't
24:13
Speaker 6: know why they The problem I have with a comment
24:16
Speaker 6: like that is there oftentimes aren't that many options available.
24:23
Speaker 6: So when when clients come to me and say they've
24:25
Speaker 6: heard this, this and the other thing, I'm like, really,
24:28
Speaker 6: I'd like to know, because in order to protect assets
24:32
Speaker 6: from the nursing home, you know, there's It's not like
24:36
Speaker 6: picking paint where you got a gazillion options. I would
24:39
Speaker 6: say that two ways to do it. If you're talking
24:43
Speaker 6: just about real estate for now, a trust. Just take
24:47
Speaker 6: your house, put it into an irrevocable Medicaid income only trust. Remember,
24:52
Speaker 6: a revocable trust won't do it, so that's not an option,
24:55
Speaker 6: right and once it's in there in that kind of
24:59
Speaker 6: a trust, it can ultimately be protected, So that's an option.
25:02
Speaker 6: The other option is sometimes people use these things called
25:05
Speaker 6: life estates, where you take the property and put them
25:07
Speaker 6: into the hands of a child or children plural and
25:11
Speaker 6: retain the right to live there.
25:14
Speaker 4: That's a way of doing it.
25:15
Speaker 6: I think there's a lot of I think there's way
25:17
Speaker 6: more negatives with that approach than there are positives. But
25:24
Speaker 6: ultimately the one positive is it will protect it from
25:27
Speaker 6: the nursing home in five years. So I guess that's
25:29
Speaker 6: an option for doing it. You know, other people come
25:33
Speaker 6: to me, they say, well, I heard I can just
25:34
Speaker 6: put my kid's name on the house and then we'll
25:37
Speaker 6: own it jointly. Well that's not well, I guess it's
25:40
Speaker 6: an option, But to me, it's not really an option
25:43
Speaker 6: because if I've given away half my house, that's not
25:46
Speaker 6: helpful for me as the mom and dads of the world.
25:49
Speaker 6: That the parents who probably are your client. So you
25:52
Speaker 6: always want to do things that protect your client first,
25:58
Speaker 6: each other husband wife, if they're Maria married, and ultimately
26:02
Speaker 6: it'll help the kids, but their secondary So things that
26:06
Speaker 6: are that might be options that don't provide protection for
26:09
Speaker 6: the parents first, I don't think are really options, but
26:13
Speaker 6: yet they're thrown out as options. So, you know, give
26:16
Speaker 6: away your house, I've heard that. Well, yeah, I guess
26:20
Speaker 6: ultimately it'll protect them from the nursing home. A boy,
26:22
Speaker 6: there's nothing good, nothing good that can come from that.
26:25
Speaker 6: But yet people think it's an option. So to me,
26:28
Speaker 6: I think, long winded answer, Chuck. But at the end
26:31
Speaker 6: of the day, there's really not a lot of options.
26:34
Speaker 6: I think there's really only one, and that's setting up
26:37
Speaker 6: the trust and putting the house in. However, you could
26:41
Speaker 6: do a life estate with the remainder being the trust,
26:44
Speaker 6: but somehow the trust needs to be involved in the
26:47
Speaker 6: planning process.
26:48
Speaker 2: Talking with Todd Watski from the law firm of Cushing
26:50
Speaker 2: and Dole, and we still have room on the phone
26:52
Speaker 2: lines here at eight eight eight two zero five two
26:56
Speaker 2: two sixty three. That is the number to call to
26:58
Speaker 2: ask Todd your estate plan in questions live right now again.
27:02
Speaker 2: That number is eight eight eight to zero five two
27:06
Speaker 2: two six three. We're gonna take a quick break here,
27:09
Speaker 2: but when we come back, we're gonna get right to
27:12
Speaker 2: your questions with Todd Lutsky. That number is eight eight
27:15
Speaker 2: eight to zero five two two six three. One more time,
27:19
Speaker 2: it's eight eight eight two zero five two two sixty three.
27:24
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:28
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:33
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:37
Speaker 1: Radio network.
27:57
Speaker 2: Still got a little bit of room on the phone line.
27:58
Speaker 2: So if you do have a question for Todd, eight
28:01
Speaker 2: eight eight two zero five two two sixty three is
28:04
Speaker 2: the number to call again? Eight eight eight two zero
28:08
Speaker 2: five two two six three. Let's go to Thomas in
28:12
Speaker 2: the car. Thomas, what is your question for Todd Latsky?
28:17
Speaker 7: Hey, do you have to go in the house outright?
28:20
Speaker 7: Still be paying a mortgage to put into the trust.
28:24
Speaker 6: So so you're saying you've got a home. I'm just
28:27
Speaker 6: wanting to try to get to the facts. You have
28:29
Speaker 6: a home, and the home is currently encumbered, Jack.
28:34
Speaker 7: Is still being a mortgage?
28:36
Speaker 6: Is it your primary residence we're talking about or a
28:38
Speaker 6: two family or a rental primary residence.
28:42
Speaker 7: Not to two family, but primary residence.
28:44
Speaker 6: Okay, so two points there. So a two family primary residence,
28:50
Speaker 6: let's say renting one unit and living in the other.
28:54
Speaker 6: And we want to take that and put it into
28:56
Speaker 6: a trust. Right, So if you want to put that
28:57
Speaker 6: into an irrevocable trust, not so much. With a revocable trust,
29:01
Speaker 6: we don't have this concern. You can just transfer it
29:03
Speaker 6: right in. But if you wanted to put it into
29:06
Speaker 6: an irrevocable trust to get it protected ultimately from the
29:10
Speaker 6: cost of long term care, we would actually put the
29:13
Speaker 6: property in, but you would reserve a life estate.
29:16
Speaker 4: So that's interesting.
29:17
Speaker 6: That's exactly what we're talking about in the guide, right,
29:19
Speaker 6: there's pros and cons to these life estates. I use
29:22
Speaker 6: them very rarely, but in your case would be one
29:28
Speaker 6: of the three times I would use a life estate
29:31
Speaker 6: is when you have a mortgage, actually two of the
29:34
Speaker 6: three times when you have a mortgage. By reserving the
29:38
Speaker 6: life estate and putting the property in the trust, that
29:41
Speaker 6: nugget of ownership preserves the mortgage. So if you have
29:46
Speaker 6: a low interest rate mortgage and you're transferring the property
29:50
Speaker 6: to the trust in today's higher interest rates environment, the
29:55
Speaker 6: bank would look for any option possible to call the note.
29:59
Speaker 6: So this trend could trigger the due on sale clause,
30:02
Speaker 6: but it will not once you reserve that life estate,
30:05
Speaker 6: so we don't have to tell the bank because we
30:07
Speaker 6: know it doesn't trigger the du on sale claus. So
30:10
Speaker 6: one that preserves your mortgage. Secondly, if it's a rental
30:16
Speaker 6: and that's the only property, meaning it's a two families.
30:19
Speaker 6: So you're renting it, and that's the only property we're
30:21
Speaker 6: putting in the trust. Well, I might not want to
30:24
Speaker 6: have to file an income tax return for the trust.
30:27
Speaker 6: If the trust owned the whole property, it would have
30:30
Speaker 6: earned income rental income, and then you'd have to file
30:34
Speaker 6: a tax return for the trust. Although it would never
30:36
Speaker 6: pay any taxes, it would flow the income through to
30:40
Speaker 6: you and you'd pick it up on your personal income
30:42
Speaker 6: tax return, so it's income tax neutral. Some people just
30:46
Speaker 6: don't like the bother of filing that extra tax return.
30:49
Speaker 6: So instead of that, you could reserve this life estate,
30:52
Speaker 6: which you'd be doing anyway because it's of the mortgage.
30:55
Speaker 6: But by reserving that life estate, not only does it
30:58
Speaker 6: give you the right to live there the mortgage, it
31:01
Speaker 6: also gives you the right to the income. So now
31:04
Speaker 6: the rental checks can continue to be written directly to
31:09
Speaker 6: you as they were in the past. You will collect
31:12
Speaker 6: the rent deposited in your personal bank account and move on,
31:16
Speaker 6: and you will not have to file any income tax
31:18
Speaker 6: returns for the trust. So long winded answer, but I
31:22
Speaker 6: think it's the right one and it gives you all
31:24
Speaker 6: the options you need. So if I was you get
31:26
Speaker 6: your planning done. Use that trust it'll work.
31:28
Speaker 4: Folks.
31:30
Speaker 6: This is a great question because it ties into the
31:32
Speaker 6: guide right the life estates. We're trying to help you
31:36
Speaker 6: understand the consequences of a life estate. So if you've
31:39
Speaker 6: got one, learn what you've done, get the guide. If
31:42
Speaker 6: you haven't done one and you're thinking about doing one,
31:44
Speaker 6: please get the guide so you can learn what you're
31:46
Speaker 6: getting into. What I mean by that is there's gift
31:49
Speaker 6: tax consequences, there's income tax consequences, there's control issues. What
31:54
Speaker 6: if I want to sell, what if I want to downsize?
31:56
Speaker 6: Where's the money go? If it's in a life estate arrangement,
31:59
Speaker 6: where are the income tax implications of that arrangement? If
32:03
Speaker 6: I want to do any of these things, folks, get
32:06
Speaker 6: the guide understand how they work. And sometimes the short
32:09
Speaker 6: answer isn't always the better answer. The short version of
32:12
Speaker 6: doing planning that is eight six six eight four eight
32:16
Speaker 6: five six nine nine or Legal Exchange Show dot com
32:20
Speaker 6: again eight six six eight four eight five six nine
32:24
Speaker 6: nine or Legal Exchange Show dot Com.
32:27
Speaker 2: Todd, I got another one queued up for you here.
32:28
Speaker 2: Let's go to John Ian Weymouth. John, what's your question
32:32
Speaker 2: for Todd? Lutsky.
32:33
Speaker 7: Yes, hey, ton Ton, I recently sold my house and
32:39
Speaker 7: so I gave everything to my ex wife for a dollar.
32:43
Speaker 7: And now what I have left is roughly a million
32:48
Speaker 7: dollars in my IRA, and I want to protect it
32:51
Speaker 7: from a nursing home. Is there any way I can
32:53
Speaker 7: protect these moneyes? And am I going to get in
32:56
Speaker 7: trouble for selling the host of my ex wife for
32:59
Speaker 7: a dollar?
32:59
Speaker 4: So let's yeah, let's try to figure it. First of all,
33:02
Speaker 4: how old are you? John?
33:03
Speaker 7: Seventy seven?
33:04
Speaker 4: So you're seventy seven. Do you have any children?
33:08
Speaker 7: Yes?
33:08
Speaker 6: Okay, So here's the concern. You have a million dollars
33:12
Speaker 6: in an IRA. When you say you sold the house
33:15
Speaker 6: to your wife for your ex wife excuse me, for
33:18
Speaker 6: a dollar? So the divorce is final? Right when you
33:20
Speaker 6: say ex wife, it's actually a final divorce, yes, okay.
33:24
Speaker 6: And and and the the selling it to your to
33:27
Speaker 6: your ex wife for a dollar was that part of
33:30
Speaker 6: the divorce settlement or is that something that happened after
33:33
Speaker 6: the fact.
33:35
Speaker 7: We we we had an amical divorce, and I just said,
33:39
Speaker 7: you know, you keep the house and where my money's
33:43
Speaker 7: were all in Ira? I said, yeah, we'll go, We'll
33:46
Speaker 7: go that way you go your and I'm going mine.
33:48
Speaker 6: I see, So you kind of gave her the house
33:50
Speaker 6: in exchange for your ability to keep your your IRA. Yeah, okay,
33:55
Speaker 6: So if it was so, basically it was a gift
34:01
Speaker 6: from you to your wife, because if you say you
34:03
Speaker 6: sold it for a dollar, that's not really a sale.
34:06
Speaker 6: I hear people say that all the time. The government
34:08
Speaker 6: would just treat that as a gift. Okay, Now if
34:12
Speaker 6: in fact it was related to the divorce. So if
34:16
Speaker 6: it's if it's tied to the divorce, I'm guessing that
34:19
Speaker 6: you could make the argument that you made this gift
34:23
Speaker 6: incident to the divorce and that you were hopefully still
34:27
Speaker 6: technically married when you made the gift, reason being that
34:32
Speaker 6: would qualify for the marital deduction, meaning you can make
34:38
Speaker 6: you can gift as much as you want to a
34:40
Speaker 6: spouse and there's no what gift tax involved. If in
34:45
Speaker 6: fact you were divorced, then you made a taxable gift
34:48
Speaker 6: to your to your spouse. So how much was the
34:51
Speaker 6: was the house worth?
34:55
Speaker 4: Okay, so.
34:58
Speaker 6: You know you technically again, if you you weren't married
35:00
Speaker 6: at the time and you were officially divorced, you made
35:02
Speaker 6: a taxable gift of five hundred thousand, Is that going
35:05
Speaker 6: to come back and bite you.
35:07
Speaker 4: Maybe not.
35:08
Speaker 6: I mean you have the ability to shelter thirteen point
35:12
Speaker 6: nine million for gift tax purposes, So clearly it's under
35:15
Speaker 6: that you need to file a gift tax return, but
35:17
Speaker 6: you wouldn't have any gift tax due. But it would
35:20
Speaker 6: eat into your Massachusetts exemption as well. So good news
35:24
Speaker 6: is if your total Massachusetts exemption is if your total
35:27
Speaker 6: Massachusetts estate is only a million, then you're under the
35:32
Speaker 6: two million dollar Massachusetts exemption. Even if you reduce the
35:36
Speaker 6: mass exemption by five hundred thousand, which you would have
35:39
Speaker 6: to do for the taxable gift that you made to
35:42
Speaker 6: your ex wife, you're still under a million five So
35:46
Speaker 6: wipe your brow and we have no gift tax and
35:49
Speaker 6: no state tax. Problem is I still haven't answered your
35:53
Speaker 6: question about the IRA, which is can I protect the
35:56
Speaker 6: IRA from the nursing home? And I don't really see
35:58
Speaker 6: a way to do that. And here's why. If you
36:02
Speaker 6: wanted to move the IRA money to one of these
36:05
Speaker 6: irrevocable trusts, you really can't because if you do, you
36:10
Speaker 6: got to take it out, pay income tax on it,
36:14
Speaker 6: and then put the balance in so even if I
36:17
Speaker 6: took out five hundred thousand, thinking I'd leave five hundred
36:20
Speaker 6: in my IRA, you know you're gonna you're looking at
36:23
Speaker 6: close to two hundred thousand dollars in tax. You figure
36:26
Speaker 6: forty percent federal and state on five hundred thousand dollars.
36:30
Speaker 6: So so I don't think that's a great idea. So unfortunately,
36:35
Speaker 6: the type of asset that you retained great for you
36:39
Speaker 6: live on it, please enjoy it, but not real easy
36:43
Speaker 6: to protect from the nursing home. And then of course
36:47
Speaker 6: you just set up designated beneficiaries on that IRA to
36:50
Speaker 6: make sure it goes to whoever you want it to
36:53
Speaker 6: go to and how and when they get it, which
36:55
Speaker 6: could be a trust.
36:56
Speaker 2: Mister Lutsky, I appreciate you taking the time to join
36:59
Speaker 2: us today.
36:59
Speaker 4: It's always my pleasure. Thank you.
37:02
Speaker 1: This has been Asked Todd on the Financial Exchange Radio Network.
37:06
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:08
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:11
Speaker 1: thirty years, helping families with the state and tax planning,
37:14
Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
37:17
Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
37:21
Speaker 1: The views expressed in this segment are solely those of
37:23
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:25
Speaker 1: or tax advice. Please consult with your illegal or tax
37:27
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:30
Speaker 1: each other and are not affiliated