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What does the data tell us about GDP shrinking in Q1? · The Financial Exchange Show

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1:02
Speaker 1: This is the Financial Exchange with Chuck Zada and Paul Lane.
1:09
Speaker 2: Chuck, Paul and Tucker with you here today and on
1:13
Speaker 2: the last day of April. We've got markets sliding again,
1:16
Speaker 2: a whole host of economic data out this morning, and
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Speaker 2: then this evening. We've got a bunch of earnings reports
1:23
Speaker 2: that we're going to be getting as well, including the
1:26
Speaker 2: two biggest ones today being Microsoft and Meta, And so
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Speaker 2: obviously we've got a lot that can move markets as
1:33
Speaker 2: we look at what is you know, shaping up to
1:37
Speaker 2: be a tough last day to the month to start.
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Speaker 2: But Paul, as we've seen like these things can turn
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Speaker 2: on a dime based on different headlines or different news
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Speaker 2: releases that we get. So you know, obviously, I think
1:49
Speaker 2: we're cognitizant of the fact that hey, it's a long
1:52
Speaker 2: day here and you don't know exactly what you're going
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Speaker 2: to get over the remainder of trading.
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Speaker 3: Yeah, there is a lot in balance this week, whether
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Speaker 3: it's the GDP report, which we'll get into, or we've
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Speaker 3: got the jobs report on Friday, and of course, as
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Speaker 3: you mentioned, those major earnings reports coming out at the
2:08
Speaker 3: close of the market, and then amidst all of that,
2:11
Speaker 3: in the backdrop, any sort of update on potential trade
2:15
Speaker 3: deals with other countries perhaps might provide a little bit
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Speaker 3: of optimism for these markets, but for now, there's plenty
2:21
Speaker 3: of economic data to parse through.
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Speaker 2: You want to start on that GDP report, I know
2:27
Speaker 2: there's a lot there, even though again this is still
2:30
Speaker 2: backwards looking in terms of it being Q one before
2:32
Speaker 2: the tariff announcement, but that seems to be the place
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Speaker 2: to start.
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Speaker 3: Paul, Yeah, let's go with that. As you mentioned, markets
2:39
Speaker 3: are selling off a little bit today. We're off over
2:41
Speaker 3: two percent on the S and P five hundred in
2:44
Speaker 3: early trading. The Dow Jones is off about seven hundred points,
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Speaker 3: and it does come off the heels of this GDP report.
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Speaker 3: What we saw for Q one of twenty twenty five
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Speaker 3: is a contraction of the US economy GDP decline by
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Speaker 3: zero point three percentomous we're anticipating we'd see a point
3:02
Speaker 3: four percent gain. It is important to note with that
3:06
Speaker 3: data that we were expecting a weaker GDP report. A
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Speaker 3: lot of that as a byproduct of the fact that
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Speaker 3: many companies pushed through a tremendous amount of imports ahead
3:17
Speaker 3: of any potential tariffs, and imports can have a negative
3:21
Speaker 3: impact on this GDP figure that we're covering here where
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Speaker 3: we did see imports soared about forty percent for the quarter,
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Speaker 3: and that does lead to a bit of a distraction
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Speaker 3: on the headline number that we're talking about here. Q
3:34
Speaker 3: four of twenty twenty four, we had seen the economy
3:37
Speaker 3: grow in and around about two point four percent. Like
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Speaker 3: I mentioned, that contraction does seem to have markets a
3:43
Speaker 3: little bit spooked.
3:44
Speaker 4: Here.
3:44
Speaker 3: The sort of generic term for a recession that's thrown down,
3:48
Speaker 3: though this isn't the absolute precise definition, is two consecutive
3:53
Speaker 3: quarters of decline and economic growth. This would be the
3:56
Speaker 3: first one that we'd mark, and if we were to
3:59
Speaker 3: see it in Q two, that would be loosely termed
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Speaker 3: as a recessionary period. But to be clear, there are
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Speaker 3: other factors that are important there, and there sometimes can
4:08
Speaker 3: be periods where you do see two consecutive quarters of
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Speaker 3: decline but not necessarily leading to a true recession. There
4:16
Speaker 3: is a lot to parse through here, but those are
4:18
Speaker 3: just some of the major takeaways here. Is noting the
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Speaker 3: outlier impact of imports as well as just a weak
4:26
Speaker 3: headline number there.
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Speaker 2: Yeah, so let's go through, you know, kind of some
4:30
Speaker 2: of the different things that we saw. I know that
4:31
Speaker 2: you touched on a few things here. Let's talk first
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Speaker 2: about personal consumption expenditures, which is a really fancy way
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Speaker 2: of saying, hey, did people buy stuff?
4:42
Speaker 1: Yeah?
4:43
Speaker 2: Personal consumption expenditures is how that is reflected. That grew
4:47
Speaker 2: at a one point eight percent annualized pace, which is
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Speaker 2: the slowest that we've seen since Q two of twenty
4:54
Speaker 2: twenty three. And we talked about this last year where
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Speaker 2: the pace for PCE that we were seeing in Q
5:00
Speaker 2: three and Q four was at three point seven and
5:03
Speaker 2: four percent annually in both the or annualized in both
5:06
Speaker 2: of those quarters, and we talked about how, based on
5:09
Speaker 2: like the historical data that we have, that's kind of unsustainable.
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Speaker 2: So I think the expectation that I had by and
5:17
Speaker 2: large was, look, that's probably not going to keep up.
5:22
Speaker 2: You're probably gonna see a bit of a drop off there,
5:26
Speaker 2: just because that's that's not what you normally see quarter
5:30
Speaker 2: after quarter. So I think this messes with with that.
5:35
Speaker 2: The question that I think is in play here is hey,
5:37
Speaker 2: do you get a rebound in Q two? Not because
5:41
Speaker 2: you expect things to go back to that level, you know,
5:44
Speaker 2: kind of as like the natural rate of growth there,
5:47
Speaker 2: but I think much more Hey, now the tariffs are
5:50
Speaker 2: front and center for a lot of families. Are you
5:53
Speaker 2: seeing families trying to front load some purchases now that
5:58
Speaker 2: they may have been spooked? So I think there's a
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Speaker 2: dec there's some chance that you can look at Q
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Speaker 2: two and be like, hey, consumption numbers can be pretty decent. There.
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Speaker 2: There's a pretty good chance that you know, that's not
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Speaker 2: impacted as long as the labor market holds up in
6:11
Speaker 2: Q two. Do you think that's a reasonable take.
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Speaker 3: I think that's fair. It's it's just we're gonna be
6:16
Speaker 3: so yeah, that's we've got a full month basically of
6:20
Speaker 3: potentially them pushing through those purchases. If there's further delay, well,
6:25
Speaker 3: I guess we're up against the ninety day period, right,
6:29
Speaker 3: and it seems like retailers are trying to do their
6:31
Speaker 3: best to hold off on increasing any prices. So I'm
6:34
Speaker 3: sure from a vehicle standpoint, I think we were looking
6:36
Speaker 3: at a thirteen percent increase for the month of March
6:39
Speaker 3: in vehicle sales. That probably will trickle through in at
6:43
Speaker 3: April's data when that comes out as well. So I
6:44
Speaker 3: think that's a real fair estimate to make that we
6:48
Speaker 3: will see a bit of a jump just because people
6:49
Speaker 3: are trying to get ahead of any potential tariff impacts,
6:52
Speaker 3: particularly on some of the durable goods or those bigger purchases.
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Speaker 3: That seems fair.
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Speaker 2: Now let's go to kind of the next main categories.
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Speaker 2: So we've looked at personal consumption expenditures, how much stuff
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Speaker 2: are people buying. The next one is what is called
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Speaker 2: gross private domestic investment, which is a fancy way of saying, hey,
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Speaker 2: how much are businesses spending on stuff that they need
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Speaker 2: in order to run their business. It's it's not necessarily
7:19
Speaker 2: like some of it can be talking a little bit,
7:21
Speaker 2: you know, about inventory and stuff like that, but there's
7:24
Speaker 2: also stuff in therea that where we talking about fixed investment.
7:26
Speaker 2: So let's talk there first. Fixed investment is not inventories,
7:30
Speaker 2: but it's are you building new facilities, factories, things like that.
7:36
Speaker 2: What are you seeing in you know, those types of areas,
7:39
Speaker 2: stuff that is you know, fixed in nature, And that
7:42
Speaker 2: grew during the quarter at a seven point eight percent
7:44
Speaker 2: annualized clip, which is really good. The thing is, there's
7:48
Speaker 2: not really any track record of that being a sustainable
7:52
Speaker 2: pace as well. The last three years were two point
7:55
Speaker 2: seven percent, two point four and three point seven, But
7:58
Speaker 2: you did have some quarters that actually came in hotter
8:01
Speaker 2: than what we've just seen. As an example, Q one
8:03
Speaker 2: of twenty twenty two came in at eight point five
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Speaker 2: percent on an annualized pace for fixed investment. Q two
8:09
Speaker 2: of twenty three came in at eight point six percent.
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Speaker 2: So occasionally you just have like these outliers here. If
8:15
Speaker 2: you do end up, you know, seeing four or five,
8:18
Speaker 2: six of these being strung together, then you can make
8:20
Speaker 2: the case, Okay, there's something going on as far as
8:23
Speaker 2: you know, some kind of you know, new boom that's
8:26
Speaker 2: kicking off, as far as you know facilities construction in
8:29
Speaker 2: the US. But ultimately, remember Q one, most of the
8:34
Speaker 2: time period there is before any tariffs had been imposed
8:37
Speaker 2: on any meaningful chunk of imports. And so I don't
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Speaker 2: think that you can really draw a line to this
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Speaker 2: number and be like, hey, this is company's trying to
8:46
Speaker 2: you know, reshore production in order to you know, deal
8:49
Speaker 2: with the tariffs. This is all pre pre April second
8:53
Speaker 2: tariff announcement, and by and large, the decisions to build
8:56
Speaker 2: plants in Q one of this year we're typically made
9:00
Speaker 2: six months, twelve months or longer ago, simply because of
9:03
Speaker 2: the scale of what you have to go through when
9:06
Speaker 2: you are building new facilities, either for retail, manufacturing, warehousing,
9:10
Speaker 2: whatever it might be. So I don't think you can
9:13
Speaker 2: draw a line and say, oh, this is you know,
9:15
Speaker 2: companies trying to reshore, because it was before any of
9:19
Speaker 2: the tariff numbers were known, right.
9:22
Speaker 3: I think that that point makes complete sense. The biggest
9:25
Speaker 3: one that we should cover within this area of the
9:28
Speaker 3: GDP report is equipment, where we saw a twenty two
9:31
Speaker 3: and a half percent increase on spending on the equipment
9:35
Speaker 3: side of things, still within this private domestic investment area
9:39
Speaker 3: that we were speaking of, and I wonder if we
9:42
Speaker 3: can point to that surge, which is pretty significant if
9:47
Speaker 3: you study if you look back at other quarters, we
9:49
Speaker 3: really haven't been in around these levels. It does seem
9:51
Speaker 3: to be sort of noisy quarter to quarter the numbers
9:54
Speaker 3: that we'll see on equipment purchase increases, but twenty two
9:57
Speaker 3: and a half percent was pre significant and I'm trying
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Speaker 3: to think if perhaps some of that was getting ahead
10:03
Speaker 3: of things here on the tear front because it was
10:05
Speaker 3: just such a big, big increase.
10:08
Speaker 2: So I look through there in terms of that equipment piece,
10:13
Speaker 2: there just to be like okay, like what is actually
10:16
Speaker 2: like where could this be coming from? Just because again
10:20
Speaker 2: we we we try to get a sense of okay,
10:23
Speaker 2: like what is actually making this move? Like why is
10:27
Speaker 2: it showing up here? And when you look at the
10:30
Speaker 2: subcategories that are in there, there are four subcategories. They
10:35
Speaker 2: have information processing equipment, industrial equipment, transportation equipment, and other equipment.
10:42
Speaker 2: The only one that has that deviation to the upside
10:46
Speaker 2: is what's known as information processing equipment, which then leads
10:49
Speaker 2: us to be like, okay, what specifically falls into the
10:52
Speaker 2: category for information processing equipment? Like you're off the top,
10:58
Speaker 2: you'd say, okay, information processing equipment? You know? Is that
11:04
Speaker 2: you know computers? Is that something along those lines? And
11:07
Speaker 2: the answer is typically yes. So I'll read here just
11:11
Speaker 2: from this is from the Bureau of Economic Analysis, who
11:14
Speaker 2: publishes this data in the US National Income and Product Accounts.
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Speaker 2: Most of the types of goods in the investment category,
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Speaker 2: information processing equipment, and software have experienced rapidly changing technology
11:26
Speaker 2: and this are candidates for inclusion in the New economy.
11:30
Speaker 2: This includes computers, peripheral equipment, computer software, communication equipment, things
11:35
Speaker 2: along these lines. So like that's basically what it is
11:38
Speaker 2: talking about there. So, like you try to make sense
11:43
Speaker 2: of this and was it just like a bunch of
11:44
Speaker 2: companies getting like data center imports coming in before. I
11:49
Speaker 2: can't really make heads or tails of exactly what it
11:52
Speaker 2: would or would not be. But once again, it's it's
11:55
Speaker 2: in this narrow area. It's not pointing to you know,
11:58
Speaker 2: this giant pulling of industrial equipment that would mesh with
12:03
Speaker 2: the idea that this is because of you know, reshoring
12:06
Speaker 2: or something like that.
12:07
Speaker 3: Yeah, it would seem like just from the sentiment that
12:10
Speaker 3: we've got from a lot of the major tech companies
12:12
Speaker 3: out there, where they're reiterating the amount of demand for
12:16
Speaker 3: their data centers and continued spending in that space, perhaps
12:19
Speaker 3: this number is a reflection of that that those companies
12:22
Speaker 3: are continued to spend on that front, whether it's semiconductor servers,
12:27
Speaker 3: anything in the technology data center area, that this number
12:31
Speaker 3: is reflecting the continued demand for that. And we'll get
12:34
Speaker 3: more clarity on that when Microsoft and Meta report at
12:38
Speaker 3: the close of the market today.
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Speaker 2: So I also think the other piece that is going
12:43
Speaker 2: to matter here is not so much Hey what do
12:45
Speaker 2: we see in Q one, because again I think this
12:47
Speaker 2: is backwards looking data and not particularly important or relevant.
12:53
Speaker 2: I don't know how much to wait this, and I
12:56
Speaker 2: know that's kind of weird given that it's GDP and
12:58
Speaker 2: it's kind of like, hey, this is a big one.
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Speaker 2: But I just don't know what to do with this,
13:03
Speaker 2: and I think that things are gonna even be skewed,
13:05
Speaker 2: like in Q two where you could see some really
13:07
Speaker 2: weird stuff where like that import boom wears off, so
13:11
Speaker 2: that'll help you know, the GDP number, but then inventories
13:14
Speaker 2: are being drawn down, which is gonna hurt the GDP number,
13:18
Speaker 2: and consumption might be pretty good, so that'll help, but
13:22
Speaker 2: you might end up with less you know, going on
13:25
Speaker 2: as far as you know motor vehicle sales and stuff
13:30
Speaker 2: like that, because some of that was front run. So
13:32
Speaker 2: it's like I continue to think, look, don't pay attention
13:37
Speaker 2: to like one specific data point in any of these reports,
13:41
Speaker 2: because stuff is gonna be kind of all over the place.
13:44
Speaker 2: It's gonna be really messy.
13:46
Speaker 1: I think the.
13:47
Speaker 2: Big thing is, hey, look at the broad trends that
13:49
Speaker 2: you see across multiple data sets, and that'll give you
13:52
Speaker 2: a better idea of where the economy is actually going.
13:54
Speaker 2: Because on some of the individual stuff, it's it's gonna
13:57
Speaker 2: get a little bit funky, and it's gonna get a
13:59
Speaker 2: little bit messy. So let's take a quick break here.
14:02
Speaker 2: When we come back, let's talk about what we're seeing
14:05
Speaker 2: from companies pulling forecasts as they are navigating second quarter
14:10
Speaker 2: I'm sorry, first quarter earnings. We'll discuss that when we return.
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15:18
Speaker 2: Well, we got a piece here in the Wall Street Journal.
15:20
Speaker 2: It's titled Trade war uncertainty prompts wave of companies to
15:23
Speaker 2: yank forecast. This is not unexpected. We had talked about
15:26
Speaker 2: this a couple of weeks ago that we thought this
15:29
Speaker 2: would be happening, and in fact, it is obviously just
15:32
Speaker 2: a lot of uncertainty out there as far as what
15:34
Speaker 2: the economic situation is going to look like over the
15:36
Speaker 2: rest of the year, and so not particularly surprising. The
15:40
Speaker 2: companies are saying, Hey, we're not gonna have guidance because
15:44
Speaker 2: we don't know what to expect.
15:46
Speaker 3: Yeah, that seems to be the continuing theme across any
15:49
Speaker 3: earning support that you'll listen to the majority of the
15:51
Speaker 3: companies pulling guides, a couple outliers saying that they're going
15:56
Speaker 3: to keep things in place and adjust as the situation changes.
16:00
Speaker 3: It will be interesting what moves some of these companies
16:04
Speaker 3: make if there are significant cost cutting measures that are taken.
16:09
Speaker 3: But again, any CEO will tell you that they don't
16:14
Speaker 3: know what the future holds of the course the next
16:16
Speaker 3: several months, so it's hard for them to make a
16:18
Speaker 3: decisive move on cost cutting or any of these other
16:22
Speaker 3: measures without a full understanding of what the landscape is
16:27
Speaker 3: going to be like. They're certainly exploring how to absorb
16:30
Speaker 3: the cost of terrafts and how to push them down
16:33
Speaker 3: to through suppliers or defray any at an expense. But
16:36
Speaker 3: of course it's something that we haven't seen in one
16:40
Speaker 3: hundred years, this broad of a trade tear front. So
16:45
Speaker 3: executives are still learning as they go here.
16:48
Speaker 2: Yeah, and I think part of it also is, you know,
16:51
Speaker 2: if you are a CEO who's sitting there saying, Okay,
16:55
Speaker 2: you know, I see these tariffs in place, do I
16:57
Speaker 2: want to, you know, try to bring some of the
17:00
Speaker 2: production back to the United States. It's made more complicated
17:05
Speaker 2: by the fact that, you know, you still have these
17:07
Speaker 2: lingering possibilities that are out there where again, I think
17:10
Speaker 2: some of these are going to turn into real things
17:12
Speaker 2: in the near future. Would be the expectation of, hey,
17:15
Speaker 2: if the US gets a trade deal with India or Japan.
17:20
Speaker 2: You might not have facilities producing goods over there right now,
17:24
Speaker 2: but maybe you've got a facility in China, and hey,
17:28
Speaker 2: if I just wait a couple weeks and there's you know,
17:31
Speaker 2: a trade deal announced with India, Okay, do I try
17:34
Speaker 2: to move my production there rather than moving it back
17:37
Speaker 2: to the US. And so maybe for the next couple
17:39
Speaker 2: weeks you just make no decisions, and then the eventual
17:42
Speaker 2: decision might be moved to a different foreign country for
17:45
Speaker 2: production rather than bring it back to the US. There
17:47
Speaker 2: are a lot of different complications that go into this.
17:50
Speaker 3: It's true. And the tricky thing with that is that
17:53
Speaker 3: would be counterproductive to what the administration would want from
17:57
Speaker 3: its economic agenda, right, And I agree with you. I'm
17:59
Speaker 3: not disputing that. I'm sure companies will think that way.
18:02
Speaker 3: And I just cannot reiterate enough how challenging it is
18:06
Speaker 3: on the US manufacturing side of things to compete with
18:09
Speaker 3: those other countries that you allude to, just because if
18:12
Speaker 3: you look at labor costs, the amount of investment that's
18:17
Speaker 3: already occurred in countries like China and some of these
18:20
Speaker 3: other ones. India is trying to catch up on the
18:22
Speaker 3: manufacturing side. But that is to me, the more likely
18:26
Speaker 3: outcome that you just see not reshoring to the United States,
18:31
Speaker 3: but then perhaps finding alternatives, whether it's you know, Vietnam, India,
18:35
Speaker 3: et cetera. Then Okay, let's bring this back to the
18:39
Speaker 3: United States. The minimum wages here versus some of these
18:43
Speaker 3: other countries. That alone is a huge disparity to make
18:47
Speaker 3: up to make your product as cheap as possible to
18:50
Speaker 3: end consumers. And there's many other inputs that go into
18:53
Speaker 3: that that just makes it hard to compete on the
18:56
Speaker 3: US side of things on manufacturing.
18:59
Speaker 2: So obviously that's something that we're seeing here. Also a
19:01
Speaker 2: piece in Baron's tariff mentioned spike one hundred and thirty
19:05
Speaker 2: two percent and earning calls uncertainty up as well as
19:09
Speaker 2: I mentioned, no surprise there obviously in terms of these
19:13
Speaker 2: being things that business leaders are mentioning on their conference calls. Obviously,
19:19
Speaker 2: like the actual data point in terms of like how
19:21
Speaker 2: much like okay, that's great that they're being talked about
19:23
Speaker 2: one hundred and thirty two percent more. But I don't
19:26
Speaker 2: know that there's much that's surprising there because it's now
19:28
Speaker 2: something that businesses are trying to sort through in a
19:31
Speaker 2: way that they weren't for the last few quarters. Let's
19:37
Speaker 2: take a quick break here when we come back. We
19:40
Speaker 2: got Wall Street watch and asked Todd after this.
19:42
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19:45
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Speaker 1: Financial Exchange Radio Network. Time now for Wall Street watch
19:54
Speaker 1: a complete look at what's moving markets so far today.
19:58
Speaker 1: Right here on the Financial Exchange Radio Network.
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Speaker 5: Markets are selling off as walzre reacts to a flurry
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Speaker 5: of economic data points this morning, including first quarter GDP,
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Speaker 5: which fell at a zero point three percent annualize pace,
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Speaker 5: slightly worse than estimates of a zero point two percent decline.
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Speaker 5: Right now, the Dow is off by over one percent,
20:18
Speaker 5: s and P five hundred is down one point three percent,
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Speaker 5: and the Nasdaq down by one point seven percent. Russ
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Speaker 5: A two thousand selling off two point three percent, Tenure
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Speaker 5: Treasure reeled is now flat at four point one seven percent,
20:31
Speaker 5: and crude oil is down one on a third percent,
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Speaker 5: trading just below sixty dollars a barrel snap down by
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Speaker 5: sixteen percent after the company declined to offer forecast, citing
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Speaker 5: macroeconomic uncertainties that could impact advertising demand. As for the
20:48
Speaker 5: social media company's first quarter, the company posted better than
20:51
Speaker 5: expected top line results. Meanwhile, Starbucks reported weaker than expected results,
20:56
Speaker 5: sending shares down eight percent. However, new CEO Brian Nick
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Speaker 5: express confidence in the coffee chain's efforts to speed up
21:03
Speaker 5: its service Elsewhere Visa reported stronger than expected quarterly results
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Speaker 5: as consumer spending held up despite higher macro economic uncertainty.
21:14
Speaker 5: That stock is down by half a percent. Super Micro
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Speaker 5: Computer shares down by sixteen percent after the AI server
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Speaker 5: makers polliniminate pniminary I Can't Talk. Quarterly earnings came in
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Speaker 5: well below its own guidance. The company said customers were
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Speaker 5: delaying orders of new servers and computer products. Caterpillar up
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Speaker 5: by half a percent after the machinery maker reported weaker
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Speaker 5: than expected quarterly adjusted earnings and sales despite tariff uncertainty.
21:42
Speaker 5: The company did reaffirm full year revenue in operating profit
21:46
Speaker 5: and after today's closing bell, all eyes will turn to
21:50
Speaker 5: big tech earnings from Microsoft and Meta on Tucker Silva,
21:55
Speaker 5: and that's Walltree Watch.
21:58
Speaker 1: This is ASKEDID on the Financial Exchange Radio Network. If
22:02
Speaker 1: you have an existing estate plan or in the market
22:04
Speaker 1: for one, Todd Lutsky is here to answer your questions
22:07
Speaker 1: and help you plan for a later life. Ask Todd
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Speaker 1: is presented by Cushing and Dolan, serving Massachusetts and New
22:13
Speaker 1: England for more than thirty five years, helping families with
22:16
Speaker 1: a state and tax planning, Medicaid planning, and probate law
22:19
Speaker 1: visit Cushingdolan dot com. Now here's Todd Lutzky and.
22:25
Speaker 2: We are now joined by the one and only Todd Lutsky.
22:28
Speaker 2: Here for ask Todd. We got the phone lines open
22:32
Speaker 2: at eight eight eight to zero five two two six three. Again,
22:37
Speaker 2: remember we only get through two to three of your call,
22:40
Speaker 2: so get calling early, get calling often in order to
22:43
Speaker 2: be able to speak with Todd Lutsky about your estate
22:46
Speaker 2: planning questions. That number again is eight eight eight to
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Speaker 2: zero five two two six three. One more time eight
22:53
Speaker 2: eight eight to zero five two two six three. Mister Lutsky,
22:58
Speaker 2: how are you doing today?
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Speaker 6: I am doing great and you I'm doing well.
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Speaker 2: I was I was thinking about my daughters yesterday where
23:06
Speaker 2: the older one really likes riding in elevators but the
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Speaker 2: younger one prefers escalators.
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Speaker 6: Yeah, they're raised differently. Yeah, they definitely are raised differently.
23:19
Speaker 6: That's true, they are, Todd.
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Speaker 2: I want to talk to you a little bit about,
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Speaker 2: you know, more on kind of naming of beneficiaries and
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Speaker 2: specifically focusing on retirement accounts. A few years back, the
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Speaker 2: ten year rule for inherited iras was put into place,
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Speaker 2: requiring them to be emptied within ten years of going
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Speaker 2: to a non spouse individual. Other than a few exceptions,
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Speaker 2: has that impacted how estate planning factors into the choice
23:46
Speaker 2: of beneficiary in these cases at all?
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Speaker 6: I'm going to say it it really had. That particular
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Speaker 6: part of the Secure Act, which is what you're referring to,
23:57
Speaker 6: sure has has not really impacted it. What it has done, though,
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Speaker 6: is it has clarified I believe the fact that you
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Speaker 6: can name a trust as the beneficiary of an IRA
24:12
Speaker 6: and allow that trust to be what they call an
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Speaker 6: accumulation trust, meaning the trust doesn't have to be a
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Speaker 6: conduit where it just flows through and out to the beneficiary.
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Speaker 6: So while it did change the distribution rules a lot,
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Speaker 6: as you mentioned, making it come out of an IRA
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Speaker 6: over ten years instead of an entire lifetime of the children,
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Speaker 6: which is a huge tax difference. Of course, it also
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Speaker 6: added disability to name the trust as the beneficiary or
24:43
Speaker 6: at least clarify how you can name the trust as
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Speaker 6: the beneficiary, and so in that regard it has helped.
24:52
Speaker 6: And remember when would you name the trust a beneficiary
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Speaker 6: of an IRA? Not all the time primary always the
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Speaker 6: spouse ninety percent of the time. That's the way to
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Speaker 6: go is name the spouse as the primary The contingent
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Speaker 6: can be the trust. But if the trust simply says
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Speaker 6: distribute to property equally out to the kids, and you're
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Speaker 6: not holding it back for any reason, you're not protecting
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Speaker 6: it from future creditors, you're not trying to get generations
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Speaker 6: skipping tax benefits out of it in future divorce protection.
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Speaker 6: Instead the trust just pays it out to the kids. Well,
25:35
Speaker 6: then I don't think you need to name the designated
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Speaker 6: beneficiary on the IRA the trust, just name the kids.
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Speaker 6: It'll come out over ten years and that's fine. However,
25:48
Speaker 6: if the IRA is a decent size, right, a good
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Speaker 6: chunk of the estate, and you are protecting all the
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Speaker 6: assets in the trust saying hold it in trust for
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Speaker 6: the benefit of the kids, divorce proofed credit or protect
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Speaker 6: it and provide for generation skipping tax benefits, well then yeah,
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Speaker 6: I probably want MYRA protected from all of those problems
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Speaker 6: as well, and so then I would name the designated
26:14
Speaker 6: beneficiary contingent designated beneficiary of the IRA the trust. So
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Speaker 6: long winded answer, but there's a lot involved with iras. Folks.
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Speaker 2: Talking with Todd Lotski from the law firm of Cushing
26:27
Speaker 2: and Dolan. Still room on the phone lines for your
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Speaker 2: estate planning questions. That number is eight eight eight to
26:34
Speaker 2: zero five two two sixty three. That is the number
26:38
Speaker 2: to call to ask Todd your estate planning questions, live
26:41
Speaker 2: on air right now. Again still a little bit of room,
26:44
Speaker 2: so do get calling if you've got a question for
26:47
Speaker 2: Todd that you want answered. That number again is eight
26:51
Speaker 2: eight eight to zero five two two six three. We're
26:56
Speaker 2: going to take a quick break right now, but when
26:58
Speaker 2: we come back it he is going to be right
27:00
Speaker 2: to your questions with Todd. That phone number one last
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Speaker 2: time is eight eight eight two zero five two two
27:08
Speaker 2: six three.
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Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:13
Speaker 1: only here on the Financial Exchange Radio Network. Todd Letsky
27:19
Speaker 1: answers your questions about his state and elder life planning
27:22
Speaker 1: every Wednesday at ten thirty right here on the Financial
27:25
Speaker 1: Exchange Radio Network.
27:33
Speaker 2: All right, let's get right to your questions with Todd Lutsky.
27:37
Speaker 2: First up, we've got Eric in Springfield. Eric, you're on
27:41
Speaker 2: with Todd Lutsky.
27:43
Speaker 4: Good morning, guys, morning. Quick question. I my father passed
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Speaker 4: left the house to me and my brother. He's buying
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Speaker 4: me out of the house. He's residing in the house,
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Speaker 4: who's responsible for the property taxes? So technically still love
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Speaker 4: half the house.
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Speaker 6: Yeah, So let me ask a couple of questions about.
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Speaker 1: That that.
28:05
Speaker 6: What what has happened here? First of all, has dad died?
28:08
Speaker 6: Is your mom living? Okay? Well, that's no big piece
28:15
Speaker 6: of this, Okay, So Dad's basically a single person. Did
28:18
Speaker 6: Dad have a will or did Dad have a will
28:21
Speaker 6: and a trust when he died?
28:24
Speaker 4: Trust? I'm in charge of the trust.
28:27
Speaker 6: So was the property that was left deeded to the
28:30
Speaker 6: trust on the date of death or was it in
28:32
Speaker 6: Dad's name alone?
28:33
Speaker 4: When Dad died, it was in his name alone.
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Speaker 6: So you had a trust, but it was not funded
28:42
Speaker 6: as we always use the term funded, right, so that
28:44
Speaker 6: that house was not titled in the name of the trust. Okay.
28:49
Speaker 6: So now that because the will was a poor over will,
28:54
Speaker 6: the will said I leave all my assets to my trust.
28:57
Speaker 6: Is that how it got in there? Because it can.
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Speaker 4: Sell sell the house, divide it equally, or you know,
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Speaker 4: he's buying me out of it.
29:06
Speaker 1: Okay.
29:07
Speaker 6: So so the house went to probate, and this is
29:12
Speaker 6: important for everybody. Eric, I was trying to explain to
29:15
Speaker 6: answer your question, but let other listeners understand what's gone
29:18
Speaker 6: on here. So, because the house was not in the
29:21
Speaker 6: trust on the date of death, that had to go
29:22
Speaker 6: to probate. But he had a poor over will, so
29:25
Speaker 6: the will actually saves the day and puts the house
29:28
Speaker 6: into the trust, and that's how it got there. So
29:31
Speaker 6: now the house is in a trust, and the trust
29:33
Speaker 6: says to do what distributed out equally to the kids
29:36
Speaker 6: or does it say buy each other out if if
29:38
Speaker 6: one wants the other one to buy him out.
29:41
Speaker 4: It's not even specific. It's either he gets half of
29:45
Speaker 4: it if we sell it, or he buys me out
29:47
Speaker 4: of it, or I buy him out of it.
29:49
Speaker 6: But there's no language that says divide everything in the
29:52
Speaker 6: trust equally to the kids. First, does it just say that.
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Speaker 4: That I'm not one hundred percent positive?
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Speaker 6: Okay, So we got to really so first and foremost,
30:02
Speaker 6: the important thing is to figure out what the trust says.
30:05
Speaker 6: So let's assume the trust does say divide everything equally.
30:07
Speaker 6: Otherwise you guys wouldn't be thinking that it's equal. So
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Speaker 6: I assume that it says that. Now if it says
30:14
Speaker 6: divide and pay it out, well, then arguably the house
30:17
Speaker 6: should come out of the trust into both of your hands,
30:21
Speaker 6: and then you guys can sell it or you could
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Speaker 6: buy it out. But right now, as long as it's
30:26
Speaker 6: sitting in the trust, and if it says pay it out,
30:30
Speaker 6: then you guys are both really on the hook to
30:35
Speaker 6: pay the bills. I mean, the trust doesn't really own it.
30:38
Speaker 6: The trust only owns it temporarily until it comes out
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Speaker 6: to you guys. If the trust says hold it in
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Speaker 6: trust for the benefit of you guys, now the trust
30:46
Speaker 6: owns it, well, then the trust has to pay these bills.
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Speaker 6: But if there's no money in the trust to pay
30:51
Speaker 6: the bills, then you kids kind of default have to
30:55
Speaker 6: pay the bills, the maintenance, the upkeep, the et cetera.
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Speaker 6: But it sounds to me like you don't really want
31:01
Speaker 6: the house, is that correct?
31:03
Speaker 4: Yeah, he's buying my half out. Okay, we agreed upon
31:06
Speaker 4: a price, and then I'm basically the bank with loaning
31:10
Speaker 4: him the money. So he's paying me monthly.
31:12
Speaker 6: Oh so what will happen is you will have to
31:14
Speaker 6: do a purchase and sale agreement. You will have the
31:16
Speaker 6: house valued whatever you agreed on. I assume it's fair
31:19
Speaker 6: market value and when you sell it to him, Yes,
31:23
Speaker 6: you will have a deed prepared from the trust. I mean,
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Speaker 6: I think if that's what you're doing, I think you
31:28
Speaker 6: got to get it out of the trust because you're
31:32
Speaker 6: you're going to be the one that wants the note
31:34
Speaker 6: right in your name. You're probably not going to want
31:37
Speaker 6: the note in the trust.
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Speaker 4: So well, he's buying me out, so it's going to
31:43
Speaker 4: end up being still in the trust. I believe because
31:46
Speaker 4: I'm the trustee.
31:47
Speaker 6: But again, I think if the trust says, if the
31:50
Speaker 6: trust says, divide and pay it out, then you've got
31:52
Speaker 6: to take the property out of the trust. If the
31:54
Speaker 6: trust doesn't require it to be held in the trust,
31:57
Speaker 6: then you got to pay out the trust and then
31:59
Speaker 6: both of you would own the property personally, and then
32:02
Speaker 6: you can sell him your half and you personally can
32:05
Speaker 6: own the note so that the payments will come directly
32:07
Speaker 6: to you. And the good news is there won't be
32:10
Speaker 6: any capital gains tax because you've got to step up
32:12
Speaker 6: in basis on the date of death, so you don't
32:14
Speaker 6: have to worry about a capital gains tax situation here.
32:17
Speaker 6: So it should be a tax free transaction. But you
32:21
Speaker 6: probably want the deed to the note, or you want
32:24
Speaker 6: the note in your hands, not in the trust only
32:27
Speaker 6: because I don't know what the trust says. If the
32:29
Speaker 6: money goes into the trust and the trust has to
32:30
Speaker 6: pay out money equally to the kids, well then you're
32:33
Speaker 6: only getting half half the money from the note, and
32:36
Speaker 6: you don't want that. You want all the money from
32:38
Speaker 6: the note because you sold your entire half. So hope
32:42
Speaker 6: this helps a little. It's a little hard to answer
32:44
Speaker 6: specifics about a trust when I don't have it, but
32:46
Speaker 6: I hope I gave you something to at least go
32:48
Speaker 6: look at and check out that trust and see what
32:51
Speaker 6: it says and just follow the terms. But it certainly
32:55
Speaker 6: sounds doable for you, So I hope that that helped
32:58
Speaker 6: a little. Folks, speaking of help, when people do these
33:04
Speaker 6: estate plans like this case with Eric, you know how
33:07
Speaker 6: you leave assets to the beneficiaries. What the document says,
33:11
Speaker 6: which is exactly what we were talking about, is exactly
33:15
Speaker 6: what's in this guide. And folks, it's the end of
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Speaker 6: the month, it's the last day, so this is the
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Speaker 6: last chance to get this guide how to leave assets
33:23
Speaker 6: to beneficiaries For folks who have done their planning and
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Speaker 6: think they've already got it set upright. Look at this
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Speaker 6: guide and look at all the different ways you can
33:32
Speaker 6: leave assets to beneficiaries, controlled generation skipping, bloodline planning, divorce proofing,
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Speaker 6: you name it, it's in the guide and it might
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Speaker 6: help you. If you've already done your planning, make an
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34:17
Speaker 1: Todd.
34:17
Speaker 2: When it comes to you know a beneficiary receiving their
34:22
Speaker 2: actual inheritance, can you give a little bit of color
34:24
Speaker 2: as to the timeline as it relates to Hey, if
34:28
Speaker 2: someone has done trust planning, how long does it typically
34:31
Speaker 2: take for a beneficiary to receive that inheritance? Whereas someone
34:35
Speaker 2: hasn't and maybe there's just a will or in some
34:37
Speaker 2: cases no will, how long does it take in those cases?
34:40
Speaker 1: Yeah?
34:41
Speaker 6: So great question. What really dovetails onto Eric. Right, So
34:45
Speaker 6: I was focusing on Eric, saying, Eric, what does the
34:47
Speaker 6: document say. Does it say you can actually distribute to
34:51
Speaker 6: property out right away? Well, if you can, then the
34:54
Speaker 6: timing on something like that would be what really short? Right,
34:58
Speaker 6: So let's play out the string timing on something like
35:01
Speaker 6: that would say, hey, divide and paid out. I don't
35:03
Speaker 6: have probate, I don't have a headache. I don't have
35:06
Speaker 6: to wait to file anything. I can just get the
35:08
Speaker 6: trustee appointed, make the distribution technically so short. However, if
35:15
Speaker 6: you've not done any planning right and it has to
35:18
Speaker 6: go to probate, well, now we're kind of dealing with
35:22
Speaker 6: filing the will, getting somebody appointed personal representative, notifying the
35:28
Speaker 6: heirs at law, waiting for a return day to go
35:32
Speaker 6: back to court, get the appointment, you know, and then
35:37
Speaker 6: file an inventory, filing an accounting. There's just a lot
35:41
Speaker 6: to go through before distributions can be made. Now, during
35:45
Speaker 6: the year long process that probate takes, you can start
35:50
Speaker 6: making distributions. You can pay bills out of the estate account.
35:54
Speaker 6: It can be done. You don't have to wait. I
35:55
Speaker 6: don't want to make you feel like you have to
35:57
Speaker 6: wait the entire year, but you certainly it's longer. And
36:02
Speaker 6: then back to the idea of a trust, the trust
36:06
Speaker 6: as I described it in the Eric situation, Yeah, it
36:10
Speaker 6: could come out right away, same token. You could have
36:13
Speaker 6: a trust designed to say I want to hold assets
36:18
Speaker 6: in trust for my children, maybe for their whole life. Wow,
36:21
Speaker 6: that's a long time. Well that doesn't mean that they're
36:23
Speaker 6: never gonna get it. You could have it set up
36:26
Speaker 6: where discretionary distributions come out to the kids over the
36:32
Speaker 6: life of the kids, and those discretionary distributions are what
36:36
Speaker 6: protects it from future creditors future generation skipping tax benefits, right,
36:42
Speaker 6: because if you don't own it, then it's not available
36:45
Speaker 6: to the creditor, but it can come out as needed
36:49
Speaker 6: so the kids can still enjoy it over their lifetime.
36:52
Speaker 6: But it's protected, you know, from creditors and ultimately from
36:57
Speaker 6: future divorces. So really it's the term terms of the
37:00
Speaker 6: trust that dictate the time and of course no planning
37:03
Speaker 6: could be a really long time.
37:05
Speaker 2: Mister Lutski, thank you so much for joining us today.
37:08
Speaker 6: Always pleasure.
37:10
Speaker 1: This has been asked Odd on the Financial Exchange Radio
37:13
Speaker 1: network Ask Todd with Todd Lutsky has been presented by
37:16
Speaker 1: Cushing and Dolan, serving Massachusetts and New England for more
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Speaker 1: than thirty years, helping families with the state and tax planning,
37:22
Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
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37:33
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